Debt restructuring

Founder of Soul Partners accompanied the debt restructuring arrangement of a large industrial group
Historically, the company has supplied products to various world markets. However, close geographical location to the Russian market presumed a significant export volume to this country. The events of 2014 forced the business to reorient part of sales channels, which affected the results of work. In 2015-2016, the business suffered significant losses and, as a result, was unable to service its loan portfolio. The Group was in stress situation and required restructuring of more than €110m. of bank loans.
Vitaliy Provotorov
Managing Partner
The creditors of the Group were represented by a syndicate of international and local banks, which have not formed a joint committee.
The debt portfolio of the company consists of syndicated loans provided by EBRD and several loan agreements with commercial banks in Ukraine. Such a variety of creditors made the negotiation process more complex.

Banks had different interests and negotiating positions

Banks could not form a joint committee of creditors. Part of the banks were in different negotiating positions (depending on the quality of collateral and the experience of "tough negotiations" during restructuring) and had no common interests. This affected the negotiation strategy and added flexibility in decision-making. However, it complicated control of the timing of the restructuring and resulted in additional risks for banks that could finance the restructuring.

Businesses could manage debt after restructuring

The company had plans to improve its financial results and successfully continued the process of production optimization. In case of successful restructuring, the debt burden would be reduced and business would be able to service debt. The key task was to find a lender who would support companies strategy to handle the crisis.
    Key steps
    The company engaged a consultant to optimize production processes. The obtained results enabled the business to service the new loan. International audit company had been invited by Banks to verify the company's updated financial model. As a result, banks were able to make sure that only a decrease in credit burden would allow the company to manage new loan.
    Negotiations with many participants
    Investment advisers helped with financial planning and negotiations. The complexity of the situation was to do everything necessary simultaneously and in a short time: to optimize the business and negotiate with each of the creditors.
    Redemption at a discount
    Liabilities to part of banks were redeemed at a discount due to the attraction of new financing (for a longer period than remained on existing loans).
    Decrease of interest rate
    As a result of effective negotiations, the average interest rate was reduced after the restructuring.
    New creditor
    Combined with improved financial results and the ability to obtain "strong collateral", the company has become a good borrower for a new lender.
    As a result of the agreement, financing was attracted from a new creditor and liabilities to other banks were either refinanced or restructured.
    The deal consisted of separate agreements with each of the creditors and the syndicate. The company's total credit burden decreased by more than three times, and the shareholding structure has not changed.

    Such results were achieved in several ways: change in the interest rate, "vacation" to repay the principal amount of the debt, an extension of the loan schedule, writing off part of the debt.

    The bank benefits from write-offs

    Reducing the amount of debt can be achieved only in one way - by writing off part of it by the bank. However, this does not mean that it is not beneficial for the bank. Usually, banks accept such conditions in exchange for repayment of the entire agreed loan amount in one tranche after signing the agreement. Formally, banks accrue reserves for loans that fall into the category of doubtful ones. When there is a restructuring and repayment of the previously reserved loan amount - banks, from an accounting point of view, make a profit. Also, they receive liquidity that they can place and start earning.
      Banks receive partial return on the loan through interest payments. And there may be a situation where the amount of previously received interest income on the loan is even greater than the amount of the discount provided to the borrower as a result of restructuring.
      Some banks have pursued a strategy to reduce their presence in Ukraine and have been interested in finding restructuring options quickly. Others simply needed liquidity. The proposed solution suited everyone.
      New participants
      Part of the primary creditors sold the portfolio of rights to their loans at a discount to new creditors. The terms of the restructuring were agreed with new creditors, while promptness of deal execution maximized the profitability of the new debt holders.

      As a result of the restructuring, funds were raised from a new lender, and the loans of other creditors were repaid or restructured. The company could service the updated loan portfolio. The shareholder fully retained his stake in the company. The credit burden of the company decreased by 3 times.
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