Atalian’s New Consent Solicitation and Super Senior Debt Raise Has Shades of Selecta; Pro Rata or Non-Pro Rata, That is the Question 

Hot on the heels of the successful consent solicitation that closed last week (the “January Consent Solicitation”), Atalian has launched a second consent solicitation (the “February Consent Solicitation”) in respect of its 8.5% Senior Secured PIK Notes due 2028 (the “Notes”).
 

The February Consent Solicitation seeks the consent of majority noteholders (the “Proposed Majority Amendments”) to:
 

• Amend the credit facilities basket under the Notes to (x) remove the various conditions for utilizing the basket (i.e., the interest caps, commitment fee caps, clean-down and intercreditor accession requirements), (y) provide that any debt under the credit facilities basket may only be incurred in the form of the €50 million in aggregate principal amount of new super senior notes (“New Super Senior Notes”) to be issued or otherwise only with the consent of majority noteholders and (z) re-iterating the previous amendment via the January Consent Solicitation, providing that the incurrence of any debt under the credit facilities basket other than the New Super Senior Notes shall immediately cause an event of default under the Notes; and

• Amend the intercreditor agreement to allow additional types of instruments (including the New Super Senior Notes) to qualify as a “Credit Facility,” which currently only includes credit facilities and is a prerequisite to gain super senior status under the intercreditor agreement.

These amendments will pave the way for the New Super Senior Notes to be issued (as described below).

In addition to the above, the consent solicitation also seeks consents to increase the size of the Credit Facilities Basket to €100 million from €50 million. This amendment requires 90% noteholder consent (the “Proposed 90% Amendment”) due to the presence of a Serta blocker in the Notes, requiring such super-majority consent for amendments that “will, or would have the effect of, establishing Lien priority (including in respect of any pro rata sharing of payments or waterfall provisions), of the claims under the New Indenture, the Intercreditor Agreement, any Additional Intercreditor Agreement or Security Documents relative to the claims and Liens of the holders or lenders under other Debt of the Issuer or its Affiliates or Subsidiaries.”

We believe the additional super senior debt capacity contemplated by this amendment “will have the effect of” increasing the amount of debt that has priority with respect to the waterfall under the intercreditor agreement from proceeds of collateral and hence requires the higher 90% consent.

No consent payment is provided to be made to noteholders in respect of such consent solicitation. The consent solicitation will expire on Friday, Feb. 6 at 4 p.m. GMT (unless extended or terminated by the company).

Similar to the January Consent Solicitation, according to the company’s press release relating to the February Consent Solicitation, holders of more than 50% of the Notes (the “Supporting Holders”) have agreed to support the transaction having signed a framework agreement and a backstop letter (i) to vote in favor of the proposed amendments and (ii) backstop the €50 million New Super Senior Notes. On that basis, we assume that the Majority Proposed Amendments, which require only simple majority consent, will be adopted.

However, the increase of super senior debt capacity to €100 million from €50 million, which requires 90% consent, does not appear to be a done deal yet.
 

The framework agreement establishes the framework and principles for negotiating and implementing a recapitalization transaction (if agreed). Under this framework agreement, the company, certain of its subsidiaries and the Supporting Holders have committed to negotiate and agree a transaction term sheet and steps plan in the near-term to address, among other things, upcoming coupon payments on the Notes and the company’s longer-term capital structure.

The company also stated that it currently expects not to pay the March 2026 coupon on the Notes and any agreed transaction term sheet will address this coupon. Under the terms of the Notes the nonpayment of interest will constitute an event of default if it continues for 30 days and require the consent of 90% noteholders to waive such an event of default.

Ominously, the company also announced that it has received two nonbinding, indicative proposals from strategic counterparties while noting that these proposals were preliminary, based on obsolete business plans and resulted in a material discount to the par value of the Notes. Discussions remain at an early stage. The company is presently prioritizing constructive engagement with the Supporting Holders under the framework agreement to find a global holistic solution to the company’s current challenges.
 

The Supporting Holders have agreed to backstop €50 million in aggregate principal amount of New Super Senior Notes. Subject to the implementation of the Proposed Majority Amendments, which by definition are already in hand, it is contemplated that the New Super Senior Notes will be issued in two tranches:
 

• The initial tranche will be issued to the Supporting Holders in an amount pro rata to their holdings of the Notes as at Jan. 30, 2026.

• The second tranche (which will be fungible with the original tranche) will be offered to all remaining noteholders (who hold beneficial interests in the Notes as of Jan. 30, 2026) pro rata to their respective holdings of the Notes outstanding as at the record date set for this purpose. Supporting Holders who purchase any additional Notes after Jan. 30, 2026, but prior to the record date will be entitled to participate in the second tranche as well to the extent of their holdings of such additional Notes. Any additional New Super Senior Notes offered in the second tranche but not purchased by the remaining noteholders will be subscribed by the Supporting Holders pursuant to the backstop letter, for which a 5% backstop fee will be payable.

Proceeds of the New Super Senior Notes will either be made available to the company directly or placed into escrow for drawdown by the company from time to time, based on its liquidity requirements and other conditions.

The terms of the Super Senior Notes described in the company’s announcements are as follows:
 

• Premium and Maturity: The New Super Senior Notes will not bear interest but will be subject to a 12% redemption premium, payable at maturity, which is one year from issuance or earlier upon a refinancing or other transaction implemented under the framework agreement.
   
• Covenants: The New Super Senior Notes will include “customary terms and covenants”, as well as a minimum liquidity covenant.
   
• Drag-Along: The Super Senior Notes may be exchanged for new notes as part of the implementation of a recapitalization transaction in accordance with the framework agreement if a majority of holders of the aggregate principal amount outstanding approve the exchange. If the exchange is approved, any nontendering holders of the New Super Senior Notes will be deemed to have consented thereto and their New Super Senior Notes will automatically be exchanged on the same terms as will be applicable to tendering holders.

The deal structure inviting the minority remaining noteholders to participate in the New Super Senior Notes is positive. However, is the deal truly pro rata? On the basis of the information included in the company’s announcements – and note that we are not privy to the February Consent Solicitation statement itself – we do not know for sure. But there are reasons to suspect some elements of a non-pro rata or at least a highly coercive transaction are at play.

Firstly, although it is stated that the first tranche of New Super Senior Notes will be issued to the Supporting Holders in an amount pro rata to their holdings of the Notes and the second tranche will be offered to all remaining noteholders pro rata to their respective holdings it is not entirely clear whether this pro-rata treatment refers to (1) the aggregate amounts of New Super Senior Notes being offered in the first and second tranches (which would mean the offer is on a pro-rata basis, other than the 5% backstop fee) or (2) only the inter-se treatment amongst Supporting Holders and remaining noteholders within their respective tranches, with the split of the amounts included in first tranche offered only to the Supporting Noteholders and the second tranche offered to the remaining holders being on a non-pro-rata basis. This should be clarified.

Second, the drag-along feature included in the New Super Senior Notes will give the majority thereunder, i.e., the Supporting Holders, the ability to force the minority into a recapitalization deal (at least with regard to their holdings in the New Super Senior Notes). If a significant part of the recovery value is attributable to the New Super Senior Notes and with the other implementation levers described below, this could be a highly coercive tool in the hands of the Supporting Holders to implement a recapitalization transaction that favors that group even though it appears to afford pro-rata treatment at first sight. In as much as the terms of the New Super Senior Debt give the ability to the simple majority of holders via the drag-along to force the minority into an instrument with new terms,presumably including changes to fundamental matters such as principal haircuts, maturity and coupon (and potentially removal of the Serta blocker enabling a future non-pro rata uptiering by the majority), this has shades of the Selecta recapitalization.

The amount of super senior debt therefore becomes significant. The additional €50 million sought via the Proposed 90% Amendment will further erode recovery value for the Notes. Our financial analyst colleagues expected the company to exhaust its surplus liquidity, which was €82 million at the end of the second quarter, by early 2027 in the base case and as soon as the second quarter of 2026 in the low case. The €50 million via the New Super Senior Notes issuance should tide them through to the end of 2027 and raises the big question of whether the extra €50 million super senior capacity being sought is liquidity driven or is motivated with a view on the broader recapitalization.

Note that even if this amendment is implemented, it appears that raising future super senior debt will still require majority noteholder consent, given that the Proposed Majority Amendments specify that any incurrence of debt under the credit facilities basket other than the €50 million New Super Money Notes will result in an immediate event of default unless the consent of majority noteholders is obtained. This potentially raises the risk of a future non-pro-rata transaction where the additional super senior debt is only offered to the Supporting Holders. The remaining noteholders would do well to diligence this.

At this point, the main leverage remaining noteholders have appears to be that their consent is needed to increase the super senior debt capacity (which may itself be used to drive a holistic recapitalization by the Supporting Holders as explained above). One of the key questions for the remaining noteholders with respect to the February Consent Solicitation is whether the offer to subscribe to the second tranche of New Super Senior Notes is conditioned upon agreeing to all of the proposed Amendments, including the Proposed 90% Amendment – no mention of this has been made in the company’s announcement. If there is indeed such a condition, noteholders may want to gain a full understanding of the facts and get a better grip on potential eventual post-recapitalization outcomes before giving up this negotiating lever.
 

There seems to be an implied threat or two in the way Atalian and the Supporting Holders have structured the deal so far. What happens if remaining noteholders do not consent, which would imply that the Proposed 90% Amendments cannot be executed?

First, we don’t know whether the ability to participate in the second tranche of the New Super Senior Notes is conditioned upon such consent being delivered. In the absence of disclosure on this point in the company’s press releases, we can only assume that is the case.
 

Further, while amendments to increase the size of the super senior debt basket require 90% noteholders consent, it may be possible for other types of LMEs to still be orchestrated via majority noteholder consent. For example, amendments to allow an unrestricted subsidiary (which are currently not permitted under the Notes), increase or create investment capacity for a drop-down of assets to it, and remove any investment restrictions including the J. Crew blocker, appear to be majority noteholder consent matters. While there may be an argument that the Serta blocker applies here too if those assets are eventually pledged to creditors, this may be a stretch. The possibility of other LMEs that require only 50% of noteholder consent, and which excluded the minority noteholders, may help nudge them into agreeing to the deal being offered to them.

A saving grace for the minority remaining noteholders, however, is that the ability to undertake a non-pro-rata exchange of Notes into an instrument backed by the dropped-down assets (which would likely be needed as a threat to a holistic recapitalization) is complicated by the presence of a “payments for consent” covenant. This provision requires the same consideration to be offered to all noteholders who consent to an amendment – any exchange notes would likely be considered to be consideration for the amendments enabling the drop-down and therefore required to be offered to all noteholders.

Amendments to the payments for consents clause are not a 90% noteholders matter and so appear to only require consent of majority noteholders. However, the payments for consent clause is designed to prevent non-pro-rata coercive consent solicitations; allowing it to be amended by majority vote would permit precisely the conduct that the clause was meant to prohibit. The question of whether the payment for consent covenant itself can be amended by majority consent in the context of enabling an LME is subject to litigation in the Hunkemoller case.
 

Even otherwise, there is the underlying threat of a distressed disposal under the terms of the English law intercreditor agreement or potential for a cramdown using a restructuring process (see below). The company has stated that it currently expects not to pay the March 2026 coupon on the Notes, which will lead to a continuing event of default under the Notes if not cured within 30 days.

This is notable because it provides a convenient trigger to initiate enforcement under the distressed disposal mechanic or to open restructuring proceedings to the extent needed/required. A continuing event of default would allow an acceleration of the notes and mean that the transaction security becomes enforceable, which would meet the requirement for a distressed disposal to be undertaken at the behest of the instructing group in accordance with the intercreditor agreement.

Such a distressed disposal could be used to facilitate: A sale to a third party (see above regarding indicative proposals from strategic counterparties), a sale to existing creditors (with credit bidding as a potential option) or as we saw in Selecta, to implement a recapitalization transaction. The presence of a double Luxco structure in the corporate structure (which was put in place as part of the refinancing/restructuring in 2024) may also assist in making any enforcement, distressed disposal and subsequent sale easier and cleaner.

We have reviewed the form of the intercreditor agreement (the “ICA”) appended in Annex C to the 2028 PIK Notes Exchange Offer and Consent Solicitation Memorandum. Under the ICA, the instructing group comprises (i) creditors holding in aggregate more than 66.67% of the aggregate super senior commitments (the “Majority Super Senior Creditors”) and (ii) creditors holding in aggregate more than 50% of the outstanding principal amount of the Notes and pari passu secured hedging liabilities (the “Majority Senior Secured Creditors”).

However, it is the Majority Senior Secured Creditors who initially control enforcement as the security agent must comply with the instructions from the Majority Senior Secured Creditors unless (1) they have failed to either make a determination as to the method of enforcement that they wish to pursue or appoint a financial advisor for this purpose within three months of the date of the initial enforcement notice, or (2) the super senior debt has not been fully discharged within six months of the initial enforcement notice, after which control flips to the Majority Super Senior Creditors. As the Supporting Holders will constitute the Majority Senior Secured Creditors, they will control such enforcement. They may also constitute the Majority Super Senior Creditors (depending on the exact percentage of Notes currently held by Supporting Holders and level of take-up of New Super Senior Notes by the remaining noteholders) so as to control enforcement beyond the initial three- or six-month period.

This means the Supporting Holders likely have the necessary tools to “force” a recapitalization even without the remaining noteholders on board, although such a maneuver will likely add to litigation and execution risk. This may be an important factor that has encouraged the company and Supporting Holders to structure the transaction in a manner that on the face of it is aimed to be more inclusive and to execute a recapitalization via a consensual deal.

Instructions from the instructing group must comply with specified enforcement principles, which provide that the primary aim of any enforcement shall be maximizing the value realized to the extent it is consistent with a prompt and expeditious realization of value. In the same breath, the enforcement principles specify that the security agent shall have no obligation to postpone a distressed disposal in order to achieve a higher price. Other features of the enforcement principles include:
 

• If instructions are given by the Majority Senior Secured Creditors, sufficient proceeds are received in cash to discharge the super senior debt (unless the Majority Super Senior Creditors agree otherwise);
• If the proposed enforcement is via the sale of shares, the security agent must, if requested by the Majority Senior Secured Creditors or the Majority Super Senior Creditors appoint a financial advisor to provide a fairness opinion (unless the sale is being effected through a competitive sales process).

Again, given the majorities needed, the Supporting Holders are likely to control (or be very close to controlling) these determinations and any waivers required with respect to the above. In this regard, the indicative proposals received may also provide an influential valuation benchmark.
 

Another potential “stick” to encourage noteholders to sign up to the proposed amendments and subsequent deal is the threat of using a restructuring process to implement the transaction. Here, French accelerated safeguard proceedings could be a likely option given the company’s center of main interest, or COMI, is located in France. The process would lower the threshold for implementing a deal given that (i) any transaction/plan needs only to be approved by a two-thirds majority voting within each class and (ii) the process includes provisions for cross-class cramdown. This means that if a transaction is not approved by all creditor classes meeting the two-thirds (66.7%) threshold, the plan can still go ahead and bind all creditors.

A majority of the classes of impaired parties must vote in favor of the plan (with at least one of those classes being a secured creditors’ class or senior to the ordinary unsecured creditors’ class). Additionally, at least one of the affected classes (other than shareholders or out-of-the-money creditors) must vote for the plan. Crucially, cramdown must have the consent of the debtor and needs to abide by the absolute priority rule (i.e. that dissenting affected parties are satisfied in full before any lower-ranking creditors receive payment).

At present, the Supporting Holders do not appear to have the requisite majorities (given only more than 50% of the Notes have signed the framework agreement) to push through a deal in this manner so a distressed disposal enforcement may be a more likely option should the required consent threshold not be achieved. That being said, the current consent solicitation process may assist in garnering additional support for the transaction or the Supporting Holders may receive a larger allocation of the New Super Senior Notes based on the level of take-up from the remaining noteholders, pushing it past the two-thirds majority needed to use the process.

Further information on accelerated safeguard proceedings can be found HERE.

Another potential avenue for implementation that may also be considered is the Luxembourg restructuring plan or Judicial Reorganization to the extent sufficient connection to Luxembourg can be established. The process involves the formation of two creditor classes (secured and unsecured), a 50% voting threshold and a class-cramdown mechanism. The process is relatively new and largely untested on international structures, however, the Supporting Holders would have the requisite majorities (given the 50% voting threshold) to push through the deal.

Finally, a word on directors duties in the context of some of the points we have highlighted above.

Directors of a French company are generally required to act in good faith to promote the success of the company for the benefit of its shareholders as a whole. The doctrine is flexible and allows for value transfers if done at fair market value, in compliance with the finance documents and justified on a group basis. Where the company faces serious financial difficulty, but has not yet entered formal insolvency, directors may apply to the French court for the appointment of agents under the conciliation or mandat ad hoc procedures, which may subsequently be converted into accelerated safeguard (see above).

Directors are only required to commence insolvency proceedings if the company has been unable to pay its debts as they fall due for more than 45 days, failing which they may incur liability, including damages and disqualification from holding future management positions.

Further information on directors’ duties in France can be found HERE.
 

The remaining noteholders are stuck with a seemingly difficult choice. Agree to the deal and enhance recoveries via participation in the New Super Senior Notes while ceding control to the Supporting Holders with respect to the final outcome of the recapitalization and potentially face a second-step non-pro-rata transaction. Reject the deal and rely on the threat of litigation to prevent a similar outcome via another LME, distressed disposal or restructuring (but with lower recoveries due to non-participation in the New Super Senior Notes). Which one will they take?

We might be accused of being a bit cynical here (and we confess we only have the limited information in the two-page press release to go by), but in our defense the way European LMEs have panned out in the recent past we think the caution is necessary.