Selecta Non-AHG Creditors’ Hobson’s Choice: 50% Consent for Sacred Rights Amendments of New 1O Notes Forces Subordinated Position, 15% Haircut; Underwater Risk Lingers on High Post-RX Leverage

Relevant Items:
Market Update Presentation
Waterfall Analysis

Swiss vending machine operator Selecta announced on June 11 that it entered into a binding agreement with key financial stakeholders with respect to a comprehensive recapitalization transaction. The deal provides for €330 million of new money, a reduction in outstanding debt of over €1 billion (including preference shares) and an extension of the group’s maturities to the second half of 2030.

The €330 million new money is expected to consist of €160 million second-out, or 2O, new money notes, a €100 million super senior bond and a €70 million super senior RCF (€53 million outstanding post the restructuring transactions), all due in 2030. Through the transactions, the ownership of Selecta will be transferred to existing first lien and second lien noteholders, from incumbent sponsor KKR. The ad hoc group, or AHG, will eventually hold control over the company post-restructuring.

The overall transaction was structured in two steps. The first step, the so-called Recapitalization by the company, effects a restructuring that provides pro rata treatment across creditor classes and minimizes litigation risks at the in-court restructuring stage. Through a controlled enforcement sale to a new holding structure that has been approved by the Dutch court, it will fully discharge the existing capital structure and transfer the company ownership to the existing bondholders. See the legal interpretation for the implementation of Recapialization in the “Implementation Strategy and Structure” section below.

The second step showcases the AHG’s creativity in presenting non-AHG first lien bondholders with a Hobson’s choice. Under a tailored exchange offer, non-AHG first lien bondholders face a stark choice:
 

• Remain in the third-out, or 3O, new debt, accepting a 15% haircut plus a slice of equity, but retaining stronger covenants.
• Swap into the first-out, or 1O, new debt, which restores full face-value recovery with no equity but comes with a 50% consent threshold to amend sacred rights / economic terms. The AHG will have majority control in the 1O tranche, 2O tranche and the company, which acts as an incentive mechanism for non-AHG creditors to opt for the 3O choice.

Through the exchange offer, an apparent industry first, the AHG locks in the ability to amend economics (money terms) of new senior debt instruments (the 1O new notes) for (at least) 12 months with just 50% consent, sidestepping the typical high-yield bond requirement of 90% consent for such changes or alternatively an expensive court-driven restructuring down the line. With at least two-thirds control (67%) of the new 1O notes, the AHG controls the vote on future amendments and economics with respect to the 1O debt during the 12-month period and therefore holds the upper hand in a further restructuring if one is needed.

See the transaction breakdown and creditor motivation below:

RX Outcomes and Creditor Motivation
 

Step 1: ‘Vanilla’ Pro Rata Recapitalization

As part of the Recapitalization transactions, existing first lien noteholders receive a package comprising €850 in new 3O notes per €1,000 of principal, presenting a 15% haircut, and a pro rata share of 15.3% of non-voting B shares issued by the new Topco holding company (“first lien equity”).

At the same time, existing second lien notes will be wiped out through a debt-for-equity swap, receiving a pro rata share of 1.0% of Topco equity (“second lien equity”). Preference shareholders also receive 1.0% of equity (“preference share equity”). The equity allocated at this stage are all non-voting shares with economic rights.

2O New Money Offer to 2L Noteholders

Following the implementation of the Recapitalization, all second lien noteholders will be offered the opportunity to subscribe for pro rata share of up to or equal to €100 million of 2O new money notes. The new money providers will be entitled to equity issued by the new Topco entity.

At completion of the Recapitalization, the new money providers will be allocated up to 62.7% of Topco equity (“new money equity”) in the form of A1 voting shares and the AHG backstopping the new money will receive 20% of the Topco equity (“backstop equity”) in the form of A2 voting shares. In total, 82.7% equity will be allocated to the second lien bondholders who participate in the 2O new money. The final equity allocation is sensitive to the take-up of the 1O notes exchange. See details for the relinquishing of first lien equity shared in the Step 2: Exchange Offer section below.

The total principal amount of 2O new money debt is €160 million, split between €100 million of cash new money (the 2O new money debt offering) and €60 million of cashless refinancing of interim funding. According to slide 22 of the investor presentation, €50 million of the 2O new money debt was received by the company in January 2025, under the interim financing agreement, or IFA. The amount was provided as super senior interim financing on a cash basis by certain members in the AHG at the beginning of this year. The total outstanding principal amounts to €60 million including accrued interest and fees (with MOCI of 1.5x) – shown in the pre-RX capital structure above.

According to sources, 83% of the second lien bondholders joined the AHG. Assuming all the first lien bondholders in the AHG exchange into 1O new debt, with at least €600 million 1O new notes as shown in the presentation, the AHG would control at least 80% of the company’s equity – and that stake could rise up to 93.7% with a full backstopping.

Step 2: Exchange Offer

In the second step, the 3O bondholders (who initially are the first lien bondholders) will be offered the option to exchange their 3O notes and equity entitlement into contractually senior new 1O notes, a chance to be restored to par value at a cost of scaling back the obtained first lien equity. Those who do not exchange may retain their 3O notes and claim their equity directly, subject to meeting certain conditions.

Namely, if the initial first lien bondholders choose to exchange to new 1O notes, there will be no impairment on the principal debt amount, and no equity will be allocated in the post-restructured group. The relinquished equity will be allocated to 2O new money participants.

Octus notes that the exchange ratio may differ between AHG and non-AHG 3O bondholders, with adjustment of accrued interest on the 3O new notes and 1O new notes due to the different completion date of the AHG-only private exchange offer and public offer.

1O New Notes’ Amendment Terms

The 1O new notes, pursuant to page 19 of the investor presentation, include a highly flexible amendment mechanic. For the first 12 months following issuance, amendments to sacred right/economic terms (such as principal, maturity and interest) can be made with the consent of just 50% in principal amount of the 1O new notes. After year one, the threshold reverts to the typical 90% requirement, which is the market standard.

According to page 4 of the investor presentation, around 67% of the 1O new notes will be held by the AHG, assuming that all 3O noteholders exchange into 1O net notes. Therefore, this 50% threshold gives the AHG significant latitude to adjust economic terms without needing to pursue a formal court-sanctioned process, or garner support from none-AHG creditors holding the instrument. The AHG will retain effective control over any future amendments during the initial 12-month period.

Court-sanctioned processes that can be also used to amend money terms have higher amendment thresholds, and are of course more expensive and time consuming. The English scheme of arrangement and Part 26A plans both require 75% creditor consent, and the Dutch WHOA process, requires 66 ⅔% support.

In practice, the structure hands the AHG the ability to execute deal amendments consensually without the need to risk valuation disputes, cross-class dynamics or judicial oversight that would exist in court-led restructuring processes. There is also potential flexibility for the group to use the 50% threshold to amend the amendment provisions themselves during the initial window, which could allow for extensions to the 50% regime and give the controlling creditors an ongoing (and perpetual) ability to adjust economics without court involvement.

Non-AHG 1L Bondholder Choice

While Selecta’s restructuring offer is formally pro rata, there is a significant catch for first lien lenders who are not part of the AHG. The newly issued 1O notes can have their economic terms amended with the consent of just 50% of noteholders during the first 12 months. Since the cooperating AHG will hold a simple majority of these 1O notes, the 2O notes and the equity, they would have the power to unilaterally modify the terms of the 1O notes and transfer value to other parts of the capital structure.

This dynamic puts non-cooperating first lien creditors at a disadvantage, leaving them with the option to take 3O paper with a haircut plus some equity, or taking 1O paper with no equity and seeing themselves worse off in comparison to co-op creditors if and when the majority strips their rights.

Due to the fear of future LME risks, the non-AHG first lien bondholders may decline to exchange into the 1O new notes. Instead, they are likely to retain the 3O new notes, which offer stronger covenant protection (90% consent threshold to amend sacred rights or economic terms), despite the possibility of remaining underwater on day 1 post-restructuring based on an enterprise value multiple lower than 7x. See the valuation discussion in Overleveraged Post-RX Capital Structure below.
 

Selecta’s recapitalization is being implemented via a Dutch court-approved controlled enforcement sale following a default, appearing to be in keeping with the terms of the group’s existing intercreditor arrangement. Bidco, a newly formed English incorporated vehicle owned by certain existing creditors, will acquire the business following the acceleration of the first lien notes.

Under Dutch law, enforcement of a share pledge can typically be conducted via private sale with the consent of the pledgor, or via public auction. However, in complex cross-border restructurings such as Selecta, where multiple creditor classes, jurisdictions and enforcement steps are involved, parties often seek court supervision, where the court will make a fairness assessment. This approach reduces the risk of post-closing challenges and provides comfort to stakeholders that the enforcement has been conducted in accordance with Dutch legal requirements.

With the court’s blessing, Bidco’s acquisition of the shares will proceed on a fully sanctioned basis, helping to mitigate litigation risk from non-participating creditors or third parties.
The restructuring mechanics and capital structure reset have now largely been locked down.

Key features include:
 

• A majority of creditors across the capital structure (IFA, first lien notes, second lien notes, new SS bond and new SS RCF) have consented to the transaction terms.
• The entire existing capital structure will be discharged in full. This includes full repayment or equitization of the SS RCF, IFA, first lien notes and second lien notes.
• New financing will refinance the SS RCF and IFA facilities. The existing first lien notes will be exchanged into a mix of 3O new notes and first lien equity.
• The recapitalization is now expected to complete imminently, with approval from the Dutch Court expected in the week commencing June 16, 2025.

As part of the recapitalization, new English law-governed entities have been inserted at the Holdco level, effectively relocating future creditor control and enforcement rights out of the Netherlands and into England. This gives the AHG enhanced flexibility to run future restructurings, amendments or enforcement processes under English law, where creditor remedies are more familiar, procedurally efficient and court-supervised processes such as schemes and Part 26A plans remain available if needed.
 

Day-1 post-restructuring leverage remains high at 6.8x, leaving almost no equity value even under a generous 7x EV multiple. See our earlier Waterfall Analysis for the EV multiple discussion. The turnaround plan and successful execution, thereby, are crucial to create an equity cushion – a key concern for the non-AHG first lien bondholders left in the 3O new notes.

Management forecasts mid-single-digit annual top-line growth over the medium to long term – a target Octus regards as ambitious. In the first quarter of 2025, sales declined 4.3 % year over year. To achieve the projected 3% growth for full-year 2025, revenue generated in the remaining three quarters must rise roughly 5% versus the same period in 2024. Management said it expects this to be driven by new blue-chip client wins, a normalization of consumer spending and improved unit economics.

Using management’s forecast with an 11% WACC and a 7x EV multiple, Octus estimates the enterprise value at €1.39 billion, implying a high post-restructuring loan-to-value, or LTV, of approximately 80%. In our low case, which assumes a 20% shortfall to management’s guidance – which we consider a highly probable scenario without further updates on turnaround plan execution – the 3O new notes are still underwater with only a 87.7% recovery.

Hence, the 3O new notes are likely to trade below par post-restructuring, with the price highly sensitive to turnaround execution and success. Although the 3O new notes offer a high PIK coupon, the accrual feature guarantees no cash returns during the holding period, together with the uncertain recovery value, which could suppress secondary market demand for the new notes and constrain immediate exit opportunity for non-AHG first lien bondholders.