Restructuring and insolvency in the industrial sector
A successful cross-border debt restructuring.
Faced with significant impending debt maturities, and struck by an urgent and unexpected liquidity crisis, Nyrstar called on Freshfields to help it to raise much-needed interim finance and to negotiate, plan and complete a comprehensive debt restructuring.
One of the largest, most complex and intense restructurings of 2019, the work involved:
- 10 countries, including Belgium-listed equity, and operational sites in seven jurisdictions; and
- €2.6bn debt, including €1bn of bond debt (two Dutch-issued high-yield bonds and a Belgian-issued convertible bond) and over 20 loan facilities of various types (eg prepayment agreements, a secured structured commodity facility, working capital facilities and hedging agreements).
Unusually for such a complex debt structure, the group had no overarching intercreditor agreement.
Urgent liquidity secured
In Q4 2018, Nyrstar faced an urgent and unexpected liquidity crisis as a result of poor quarterly results, impending debt maturities and negative analyst/press reports, precipitated by the sudden loss of credit lines.
Freshfields mobilised over 120 lawyers across five offices and numerous local firms.
Within a month, we had structured and agreed a bespoke secured $650m trade finance framework agreement with Trafigura to save Nyrstar from immediate insolvency, also providing a stable platform for stakeholder negotiations towards a wholesale debt restructuring.
In April 2019, liquidity was again a crucial concern, and a further $250m of secured bridge financing was obtained from Trafigura, in the context of a lock-up agreement with a view to the ultimate restructuring.
Structuring the deal…
Given the scale of losses faced by creditors in the alternative (only minimal recoveries were expected in an insolvency), a legal deal-delivery mechanism was required, alongside urgent contingency planning, while the group negotiated on the brink.
There were Belgian, Swiss and Dutch borrowers/issuers with guarantors across many other countries. But we concluded that local restructuring processes couldn't be woven together to provide a comprehensive, risk-free solution.
A group-wide US Chapter 11 was also not viable due to issues of cost and timing, European recognition and potential local director liability.
… and implementing it…
To restructure Nyrstar’s bond debt, the English scheme of arrangement was the best option.
Our innovative solution involved inserting two new English holding companies for Nyrstar’s operating group. One of these became a co-primary-obligor of all three bonds so that it could propose a single scheme to achieve the release, in full, of all Nyrstar’s bond debt.
We also changed the governing law and jurisdiction of the two high-yield bonds from New York to English law. To make these changes and implement the structure needed for the scheme, we successfully conducted various high-yield bond consent solicitations and convertible bondholder meetings. Since the high-yield bonds were previously governed by New York law, and because of significant US-based bond holdings, we also obtained US Chapter 15 recognition of the scheme.
For the loan facilities, full lender consent was ultimately achieved, so these were therefore restructured through contractual amendments and reinstatements, with €160m of new money provided to the restructured operating group.
The deal saw Trafigura obtain 98 per cent equity in the restructured operating group, in return for:
- providing Nyrstar’s existing bondholders with around €570m of new, Trafigura-issued instruments
- effectively subordinating the $900m of interim finance it had provided to the Nyrstar; and
- guaranteeing around €900m of reinstated debt and new money for the restructured operating group.
Meanwhile the otherwise out-of-the-money Belgian shareholders benefit from the remaining 2 per cent stake in the operating group, with a valuable put-option.
… amid serious challenges
This transaction was negotiated amid considerable stakeholder hostility, liquidity challenges, bond payment defaults, significant European media attention, close regulatory scrutiny and the threat of shareholder litigation.
Along the way, Nyrstar also faced serious operational and technical difficulties, including site closures and a two-week cyber-attack.
A great cross-practice, cross-border achievement
After more than nine months of intense effort, the group’s restructuring completed, for the benefit of all its stakeholders, saving around 4,200 jobs.
Structuring and delivering such a complex but comprehensive solution also involved extensive cross-border tax analysis, European employment law advice and works council engagement, Belgian pension transfer issues and devising a complex new fractional trust holding structure for smaller bondholders.