(Debtwire) Intralot restructuring plan faces pushback from 2024 bondholders with potential litigation risks

20 January 2021 | 18:23 GMT

Greek gaming operator Intralot’s restructuring proposal is facing pushback from the holders of its 2024 senior unsecured notes, as the ad hoc committee is looking to engage with the company to change their treatment under the plan, said six sources familiar with the matter. Litigation risks exist, the sources added. 

Last week the company announced it had entered a lock-up agreement with an hoc committee of EUR 250m 2021 senior unsecured noteholders, holding in excess of 75% of the notes and in excess of 13% of the EUR 465m 2024 senior unsecured notes. Under the terms of the agreement, the 2021 holders will exchange EUR 250m of their notes into EUR 205m of new senior secured notes due 2025, to be issued by US-based subsidiary Intralot Inc. 

The new notes will be subject to a springing maturity to September 2024 if the maturity of the senior unsecured notes due 2024 is not extended by at least 12 months.  

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.

Intralot is also proposing 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 Intralot Inc. 

The 2021 ad hoc group will provide a backstop to the 2024 note exchange by guaranteeing a minimum tender offer of EUR 68m for 18.7% of the NewCo’s share capital. This implies that in total, around 36% to 37% of the 2024 notes would be converted into 49% equity of the Dutch-based entity, the first two sources noted.

The 2021 notes hold temporal seniority, but structurally they are pari passu with the 2024 notes, as earlier reported. However, in this proposal the two bond issues were treated very differently, all sources noted.

“The 2021s get ringfenced and get better security in terms of the US business,” commented the first source. “And they would mature at the same time as the 2024s because of the springing maturity. Even as a 2024 holder who doesn’t tender, your instrument is going to be worse than the 2021s and it won’t be pari passu anymore.”

“The proposal has not been negotiated with the 2024 holders,” commented a third source. “There has been no meaningful engagement [between the company and this creditor group]. It can be made into a proposal, which works for the 2024s, but that’s a negotiation process which needs to happen.” 

On 15 February, the ad hoc committee of 2024 holders – holding well in excess of 50% of the 2024 notes and in excess of 10% of the 2021 notes -- announced it looked forward to engaging immediately with the company to determine whether a consensual restructuring transaction could be agreed in relation to the 2024 bonds.  

The 2024 ad hoc group is working with advisors PJT Partners and Dechert, as earlier reported.

Holders of the 2024 notes previously included Gramercy, Chenavari and Serengeti. 

Alchemy, which used to hold the 2024 bonds, has sold out of its position, said the first and the fourth source familiar. 

Going Dutch 

In absence of a substantial modification in treatment for the 2024 notes, it is unlikely that the holders of the 2024 notes will be willing to exchange their notes for equity in the Dutch NewCo, said the first and a fifth source. 

“The option to partially exchange for 49% of that Dutch NewCo entity doesn’t sound like a great idea," said an analyst as special situations firm Sarria. "You would have no trigger point for that paper and Intralot entertains inter-company dealings between its Greek and US entities. If instead you decide to remain 100% a creditor of the group, you would not only earn more coupon, but also have both, an implicit economic claim to the 51% of that same entity and on everything else too. While some consider the remaining group a net liability, we would certainly choose the hard maturity over theoretical economics here.”

Intralot is proposing to implement the restructuring of its 2021 bond issue by way of an out-of-court distressed exchange, the sources noted.

By keeping the restructuring process out of court, Intralot does not have to grant the same treatment to the 2021 and 2024 senior notes, even though they rank pari passu, said the third and the sixth sources. 

In order for the distressed exchange of the 2021 notes to go through, the Greek gaming operator needs 90% consent from the holders of the 2021 notes, said the company in the press release. 

A consent from the 2024 noteholders is not needed, according to the sources.

However, given that the ad hoc group of the 2024 notes has a 10% plus holding in the 2021 notes, it can block the exchange, said the first, third and fourth sources.

Intralot said it has alternative plans to implement the restructuring if its Plan A does not go through, according to the press release.

The gaming operator could go for a scheme of arrangement concerning just its 2021 notes and keeping the 2024s out of court, avoiding the pari passu issue altogether, the first and fourth sources said. However, the 2024 bondholders and their advisors retain that this would trigger an event of default under the 2024 bond indenture, the same sources added. 

The 2024 ad hoc group of noteholders also claims that the issuance of the new EUR 205m senior secured notes to replace the 2021 notes is a breach of the terms of the 2024 bond indenture, the third and fourth sources said. 

Intralot under its current bond terms does not have the basket capacity to issue the new notes, the first, third and fourth sources said. 

In the absence of further negotiations between Intralot and 2024 noteholders, there are significant risks of litigation being brought forward by the 2024 noteholders, all sources said. 

“If the shareholder and the large holders of the 21s agree to it, the 24s do not seem to have a legal avenue to challenge," said Sarria. "The 2024s should resist it by all means, but given we’ve come this far, we fully expect the company to go ahead with it and the 24s will have to arrange themselves with the new reality.”

“We will see what will happen,” said the fourth source. “The last thing this company wants is for this to blow out and go to court. [On the bondholder front], there is a possible litigation strategy but I am not so sure the funds big in them will go through with it. The 2024s could negotiate and get a slightly better deal, for instance a second lien on the US business, a bigger haircut for the 2021s or maybe haircut for both – bigger for the 2024s - with stricter docs and reinstatement at the same level.”

Any litigation would likely happen in a US court, because that is where the equity value of the company lies, said the first and sixth sources.

Intralot did not respond to a request for comment.

by Giulia Morpurgo, Jou Yu and Chiara Elisei