Cart schreef op 18 februari 2025 12:09:
Hedge funds are trying to exploit a unique clause in the bond documentation of some of Europe’s safest companies, forcing borrowers to buy back debt at above-market prices following asset sales or corporate break-ups. Companies including Guy Hands’ property firm Annington, Just Eat Takeaway and Dutch state-owned electricity grid operator Tennet have been targeted by creditors arguing that, by selling large chunks of their business or splitting into multiple entities, the companies have defaulted on their debt. The argument hinges on a so-called cessation of business clause, which has become commonplace in documentation for safer investment-grade bonds in Europe in recent years. If triggered, this clause forces the borrower immediately to repay outstanding bonds at face value. Betting that they will be able to force a company either to repay fully its debt at par value or to buy it back above the market price in order to appease bondholders, opportunistic investors are monitoring break-ups or spin-offs, and are piling into bonds trading at a discount. Advisers have drawn up “shopping lists” of companies with the clause in their documents, said a person familiar with such deals. Borrowers are starting to wake up to the potential danger posed by the clause, according to bankers advising on the deals. “Issuers are now trying to work out whether this is something you need to take into account when you’re planning your disposal strategy,” said one restructuring adviser involved in a number of such disputes. During the past few months, Hands’ Annington has been pursued by funds including DE Shaw, Sona Asset Management and Attestor, according to people familiar with the matter. They have been scooping up its bonds at prices as low as?76 pence on the pound following the firm’s long-awaited £6bn sale of 36,000 military housing properties to the UK government. The company used the proceeds of the sale to pay off a £400mn term loan, cancel a £100mn revolving credit facility and launch a tender offer to buy back £3.35bn of its outstanding bonds above the market price but below their face value. Some holdout creditors, advised by law firm Milbank, rejected the offer, insisting that Annington had triggered a cessation of business clause and that they were due repayments at par. Around £2bn of bonds were bought back through the tender offer. If holdout investors can prove that the company triggered the clause and the asset sale was “materially prejudicial” to bondholders, they could stand to make a?roughly 30 per cent profit. “Annington has taken legal advice and is firmly of the view that the MQE [Married Quarters Estate] sale does not constitute an event of default,” said Annington chief executive Ian Rylatt. “The tender offer was priced to give existing noteholders an attractive premium to the market value of the notes.” DE Shaw, Sona Asset Management and Attestor declined to comment. Sweden’s SKF, the world’s largest bearings manufacturer, asked bondholders this month to confirm that spinning off its automotive business “will not cause an event of default under the conditions of the notes”. Recommended Hedge funds Hedge fund managers pocket almost half of investment gains as fees The trade was pioneered in 2023, when investors in the bonds of Belgian chemicals group Solvay called investment bankers at Houlihan Lokey, arguing that the splitting of its speciality polymers business from the rest of the company constituted an event of default. While Solvay was attempting to split the debt between the two entities, its creditors and Houlihan pursued it for triggering a cessation of business. Solvay was forced to repay the bonds at par, rewarding investors who bought up the debt for prices lower than 90 cents on the euro. These opportunities, which depend on the legal language used, have arisen due to a period of very low interest rates in Europe from 2019 to 2021, said Jeff Dorst, a managing director and liability management practice leader in Houlihan Lokey’s financial restructuring group, who has advised creditor groups in these situations. “A number of securities issued in that timeframe have very low coupons, and thus trade below par in the current rate environment,” he said. Creditors have also used the clause to pursue Dutch grid operator Tennet, after it announced it would sell its German business to the government in Berlin. The dispute is on hold after Germany pulled out of the deal. Early last year, bondholders asked Swedish personal care products maker Essity to repay its debt at par following the sale of its 52 per cent stake in tissue maker Vinda. The bondholders have now taken the company to court after it refused their demands. Just Eat has become a recent target of creditors advised by Milbank over its sale of Grubhub, while WHSmith has appeared on the radar of investors after the retailer confirmed it was in talks to sell its UK high street shops. However, advisers monitoring these opportunities said the bonds might not trade low enough to make the margin worthwhile. “The facts are a little bit different on each one, the holders are a little bit different, the documents are a little bit different,” said a restructuring lawyer familiar with the documentation. “So just because one goes one way, it doesn’t necessarily mean they all will.”