(Debtwire) Intralot clears hurdle on path to restructuring implementation, but litigation risks from 2024s remain

29 June 2021 | 10:58 BST

Intralot has cleared a major hurdle on the path to implement its debt restructuring. The Greek gaming group announced yesterday (28 June) a transaction that is set to change the holding distribution of its 2021 notes and bring its supporting ad hoc 2021 bondholder group above the required threshold, said four sources familiar with the matter.

The ad hoc committee of 2021 noteholders – which holds in excess of 75% of the total EUR 250m senior unsecured notes due in September 2021 – will provide a EUR 147.6m facility that will be used by the company to purchase at par the 2021 notes on a pro rata basis. The company will then issue EUR 147.6m of additional 2021 notes to the ad hoc group in exchange for the cancellation of the facility.

This will lead the ad hoc group to hold more than 90% of the bond issue, which constitutes the threshold to implement a voluntary exchange, as reported.

The two big holders of the 2021 notes are Beach Point and Oak Hill, as reported. The 2021-heavy group of bondholders is advised by Houlihan Lokey and Milbank.

Under the lock-up agreement entered by the company on 14 January with the 2021 ad hoc group, the 2021 investors will exchange EUR 250m of their claims into EUR 205m of new senior secured notes due 2025, to be issued by US-based entity Intralot Inc.

Meanwhile, Intralot also proposed holders of its existing 2024 notes to exchange their outstanding bonds for up to 49% of the share capital of a yet-to-be-established Dutch NewCo, which will be a direct subsidiary of Intralot Global Holdings and indirect parent of US entity Intralot Inc. In total, around 36% to 37% of the 2024 notes would be converted into 49% equity of the Dutch-based entity, as reported.

In the absence of the newly-announced transaction, the ad hoc group of 2024 noteholders – which have been pushing back on the terms of the restructuring deal – could block the exchange, as reported.

“It’s clever how the 2021 ad hoc group is going around the consent threshold,” commented the first source.

“The company won’t use cash [to implement the transaction] and it won’t issue debt at the US [entity] level,” said the second source.

One of the implementation routes that had been aired in the market earlier in the year was indeed the repayment of the 2021 holdouts at par, as reported. However, that was not deemed the preferred choice, given that the company would have had to put aside a sizeable amount of cash for the purpose, while the current transaction does not entail it.

Alternatively, the gaming operator could have opted for a Scheme concerning just its 2021 notes, keeping the 2024s out of court. However, the 2024 bondholders and their advisors reckoned that this would have triggered an event of default under the 2024 bond indenture, as reported.

Given the company does not have to resort to a court proceeding to implement the restructuring of its 2021 notes, it will avoid triggering a potential cross-default on its 2024 noteholders, which could have potentially led to litigation, said three of the sources.

“This goes around the procedural angles for litigation,” commented the third source.

Litigation still possible

The terms of the restructuring for the holders of Intralot’s 2024 notes are unchanged, the sources said.

“To the 2024s, this announcement makes no difference,” said Sarria, an independent special situations firm. “The economics of the deal remain the same.”

It is now a matter of waiting and seeing whether the 2024 noteholders will decide to bring the company to court, as they could still have ground for litigation, the sources continued.

The 2024 ad hoc group previously argued Intralot does not have the basket capacity to issue EUR 205m new notes under its current bond terms, as reported. In fact, the liens covenant on Intralot’s 2021 and 2024 bonds permits credit-facility basket debt, general debt basket and ratio debt to be secured subject to a cap of up to EUR 100m and 8% of total assets, according to Xtract Research, a sister publication of Debtwire.

The basket capacity issue could be solved by hiving down the US entity outside of the restricted group. However, that could trigger a change of control under the 2024 bond terms. In the 2024 Offer Memorandum, the definition of change of control includes the disposal of “all or substantially all” assets. If the clause is triggered, then the 2024 notes become callable at 101.

Given that the US entity is currently the part of the group that generates the great majority of the Intralot’s cash and EBITDA, 2024 bondholders would likely contest such a move in court, as reported.

A decision from the 2024 bondholders on what to do next is in the works, the fourth source said.

“But maybe what the market needs, is for a deal to be implemented, so that the dust can settle and the company can focus on its turnaround,” said the first source. “And there is probably still decent upside for the 2024s [coming from the company performance].”

Intralot reported a 9.3% Year-on-Year (YoY) increase in revenues to EUR 102m and a 56.4% rise in adjusted EBITDA to EUR 20.8m in 1Q21.

Intralot’s 2024s were about half of a point better at 62.875-mid while the 2021s were about one and a half point higher at 82.875-mid today (29 June), according to Markit.

The company is working with advisors Evercore and Allen & Overy, as reported.

Intralot did not respond to a request for comment.

by Giulia Morpurgo