Deviations From Critical Paths – PIK Litigation Blocks Ardagh Metal Packaging Sale; Air Baltic Diverted to Chapter 11; Trouble Brewing as Lipton Tea Co-Op Leaves Bitter Aftertaste

Reporting: Chris Haffenden
“Nothing is a line. Everything everywhere is always moving forever. Get used to it.” Logan Roy

The shortest path from the start to the finish is a straight line. In reality, however, in the corporate world situations rarely move in a linear fashion, with assumptions and timelines not drawn in permanent ink. Progress is wobbly and erratic, pencil lines are often rubbed out after a number of changes of course, where expected and unexpected obstacles appear in your way, and you may have to deviate from the critical path or even come to a sudden halt.

It can happen unexpectedly, and sometimes at a very late stage, when the finish line is in sight.

What could appear to be a dead cert, for a transaction already substantively agreed by the main stakeholders, where the final stages can appear to be a mere formality, with just a few loose ends and conditions precedent to address before a transaction can close, can be delayed or derailed by regulators and/or the courts when you least expect it.

It is only human nature to count your profits before they are crystallized and sitting in your bank account, you imagine yourself in your forever home before the keys are in your pocket, or already spending your estimated bonus based on your target beating year-to-date P&L. This only adds to the pain, when things go badly awry.

That happened twice this week, where there were two big changes of course in the world of European special situations – with developments at Ardagh Group and Air Baltic catching ourselves and many of the stakeholders by surprise.

On Wednesday, Ardagh Holdings S.A. announced that a summary judge of the district court of Luxembourg issued an injunction preventing it from currently proceeding with the sale of all or part of its interests in Ardagh Metal Packaging S.A.

The ex parte application was brought by certain minority holders of the senior secured toggle notes due 2027 issued by ARD Finance S.A., a parent company of Ardagh Group S.A. prior to its recapitalization transaction completed in November 2025.

Yes, those pesky PIK note holders again, which represent about 12% of the $895 million and €1 billion PIK notes both due 2027. Not content with a 0.97% indirect stake in Ardagh Holdings they received in a mopping up operation of the minority dissenting PIK notes via the Luxembourg JRP process, which they disparagingly called monopoly money, they blocked via an injunction the sale of its 76% stake in Ardagh Metal Packaging, which is valued at a reported €2.74 billion. That is quite a lever for a negotiation if the injunction is not lifted.

The AMP sale process was announced in August, almost exactly a year on from the announcement of Ardagh Group’s recapitalization – which in simplistic terms saw control of the group switch to SUN holders led by Arini and Canyon via a debt-for-equity swap. The 76% AMP stake – which was subject to a drop down financing in the spring of 2024 – was recontributed back into Ardagh, with Apollo the debt provider repaid in full.

Structures that are being considered for the AMP sale include Ardagh selling its controlling interest directly to a third party or Ardagh first acquiring the roughly 24% of AMP shares it does not already own and then selling the business in full. Ardagh has not set a sale deadline, and it said that there is no assurance that a transaction will materialize.

Octus analysts have taken a look at the potential bidders: “who could realistically buy AMP and on what terms, given the highly concentrated nature of the aluminum can industry and resulting antitrust and regulatory issues.”

They note that AMP’s asset base did not emerge organically, but as a result of the Federal Trade Commission, the European Commission and Brazilian antitrust regulator CADE requiring Ball Corp. to divest it to Ardagh as a condition to clearing Ball’s 2016 acquisition of Rexam, a deal that combined the two largest beverage can makers in the world at that time. The divestiture to Ardagh was designed to preserve a level of competition that a potential sale of AMP back into concentrated hands could reverse.

In July, Octus reviewed the business a year on from its restructuring and assessed its Clearly Ardagh transformation initiative to improve its adjusted EBITDA and operating cash flow through 2030. Over the next five years, the company said it expects to “increase Adjusted EBITDA by up to 20% and improve Adjusted Operating Cash Flow by as much as 60%.

Helpfully, they produced a neat consolidated pro forma capital structure for both Ardagh entities.

(To enlarge, CLICK HERE)

As you can see, despite a substantial debt restructuring which removed $2.348 billion of unsecured debt, Ardagh Holdings is still highly leveraged at 7.1x at end June, and about 5.5x if you include dividends from AMP. The $2.4 billion (equivalent) sale could help deleverage the business to more acceptable levels, and provide a cushion while it executes its Clearly Ardagh transformation.

But just a minute – the latest court order could now mean a pause, hesitation or deviation from the original sale plan.

According to the Ardagh press release, the Luxembourg court order was issued against Ardagh Holdings without the company having had the opportunity to present its position. Ardagh Holdings said it strongly believes that the application is without merit, is vigorously challenging the order and has made an application for it to be withdrawn.

We will track the legal challenge from the company as it progresses, but in the meantime it is worth reminding ourselves how we got into this mess.

Under the restructuring plan, the PIK notes were offered an exchange into 7.5% of Ardagh Holdings equity, with the remainder going to the SUNs via a debt-for-equity swap. There would be $1.5 billion of cash raised through the issuance of first lien notes. As part of the deal, Ardagh’s parentco Yeoman Capital would be sold to the new equity owners for $300 million as a quid pro quo for the former controlling shareholder Paul Coulson to walk away from the business.

There was a coercive element to the PIK exchange to encourage participation to get to the 90% consent threshold. Under the transaction support agreement, in order to receive their full pro rata share of the 7.5% equity, noteholders had to join the TSA no later than Aug. 11, 2025. All noteholders would share in 70% of the equity allocation, while 30% of the allocation was reserved for holders that joined the TSA by the deadline.

But the dissenting PIK note holders (Carronade Capital, Deutsche and Crown) had a 12% stake, enough to block the consent solicitation offered to the PIKs in Ardagh’s recapitalization plan.

The company wasn’t perturbed, the PIKs exchange wasn’t a deal breaker for the wider recap, and it cryptically had said it had alternative routes to implementation.

To circumvent this block, the company used a vote-swamping tactic – from a private exchange, whereby holders representing 80% of the PIK Notes had converted their holdings leading to 77.61% of the PIK notes being held by Yeoman.

The company then sought to equitize the remaining PIK bondholders via its Luxembourg restructuring plan, via a petition filed with the District Court of Luxembourg last December. The PIK notes were secured by two share pledges over group subsidiaries. However, the pledged shares were appropriated by Yeoman after Ardagh Group S.A filed the amicable agreement petition with the Luxembourg court.

The PIK note holders alleged that the plan company, ARD Finance, its consenting creditors and the Ardagh Group’s former owners engineered an artificial insolvency and used the JRP specifically to force conversion of the secured PIK notes which were stripped of their security into near worthless shares – which they liken to “monopoly money” in terms of real value – in order to circumvent the 90% consent threshold in the PIK indenture.

This was more than the simple majority by number and value to implement the JRP – with the PIKs in a sole class of creditors. The stripping of security was an important point here, as they lost their effective veto over the plan since, in the law of Luxembourg, the consent of each and every secured creditor is required for all proposals except maturity extensions up to 24 months.

Clever.

The District Court of Luxembourg approved a restructuring plan for Ardagh’s PIK notes issuer, ARD Finance, on May 29, despite pitched opposition from the dissenting PIK ad hoc group. An appeal was filed with the Luxembourg Court of Appeal on June 17, as reported. An introductory hearing is scheduled for Sept. 29 where a date will be scheduled for a hearing on the merits. A decision is expected by the end of the year.

In their appeal, they argue that the 0.97% stake in Ardagh Holdings offered to the PIK issuer in the JRP is worthless, given that there is no capacity for dividends. Another way of looking at it is that in early January quotes on the equity (cited in our piece on Ardagh CDS settlement) were €7.5-€8.5 per share, equating to a market cap of €750 million to €850 million, which would have valued the 0.97% stake around the same time of the JRP at just €7.76 million.

You could argue in hindsight that if they had offered a better deal to the PIKs, it could have saved a lot of time and money. I haven’t done the math, but the legal costs of the various challenges, the time value of money for the delays to the AMP sale and tying up loose ends must be racking up, notwithstanding the distraction it causes for management and the new owners.

Could Ardagh decide to rock up at Sept. 29 hearing with a settlement offer, to make this problem go away? It would be a change of direction, but as they say, progress is never in a straight line.

Air Baltic Restructuring changes flight path, diverted to chapter 11, after interim financing stalls

Over the past few weeks, we had heard noises that Air Baltic was considering a chapter 11 filing. This was despite talk of interested third party investors, and the noise didn’t die down after the interim €270.5 million in super senior financing arranged by Polus Capital Management and Klirmark Capital to bridge to a restructuring was announced in early September.

A fortnight ago, we highlighted how expensive this interim financing was, and that bondholders might balk at the uptiering of €81.1 million of senior secured bonds as part of the transaction.
In terms of ranking, the uptiered bonds will be senior to the existing bonds, but junior to the new bonds in the priority waterfall.

Interest was 25% per annum, albeit capitalizing, not cash pay, with the interim bonds maturing on Feb. 26, 2027. There is also a makewhole payment and plenty of fees on offer to Polus and Klirmark – a 10% commitment fee equal to 10% of the minimum threshold (50% of the new bonds and tap issue amount); plus a backstop fee equal to 10% of the aggregate Free Float Amount (40% to Klirmark, 60% Polus) and €3 million work fee (50:50).

On Wednesday, Sept. 9, a day before a bondholder vote to approve the interim financing, an ad hoc group of bondholders hosted a webinar for bondholders, on which it urged holders to vote in favor given just 30% had indicated their support. The vote was pushed out to Sept.14.

But clearly, the interim financing deal was in trouble and, on the day of the voting deadline, Air Baltic filed for chapter 11.

According to a press release by Air Baltic, the company has secured a commitment for €350 million in new debtor-in-possession financing, arranged by Strategic Value Partners is funded by Barclays, Hayfin Capital Management, Morgan Stanley, Oaktree Capital Management and Strategic Value Partners. The financing carries an interest rate of SOFR+800 bps, or approximately 12%, and is expected to provide sufficient liquidity alongside cash generated from ongoing operations to support operations during the court-supervised process.

According to the first day declaration, prior to the petition date, the debtors engaged the ad hoc group of 2029 bondholders and other institutions to provide interim financing, receiving four term sheet proposals. The debtors say discussions with third parties stalled because the bondholders have liens on much of the company’s assets and would not consent to priming.

After “weeks of protracted negotiations” with the group, the company determined its Part 26A proposal would not provide sufficient liquidity runway to achieve the Company’s operational objectives and opted to pursue a DIP facility and chapter 11 filing instead. The company received multiple DIP bids, but did not obtain a binding commitment ahead of an “imminent liquidity cliff.” On Sept. 4 the company solicited consents from bondholders on the ad hoc group’s out-of-court proposal as a fallback to prevent liquidation, before securing the $406 million third-party DIP commitment on Sept. 12.

The same morning, the company’s existing 14.5% 2029 bonds with €393 million outstanding fell to 7.5 cents (they were in the mid 30s in August and par in January). As a former colleague of mine used to say – “there is strong support at zero.”

Our US team live blogged the first day hearing, which can be found here.

In a lively hearing, Judge Lisa Beckerman granted interim approval of the Air Baltic debtors’ €350 million new-money DIP financing, overruling an objection from an ad hoc group of 2029 noteholders that argued the funding would impair their collateral.

The judge said the Latvian airline would face a “shutdown” if the DIP financing was not approved. “I don’t see how a shutdown of these operations is in anyone’s benefit here,” she said. Interim DIP approval gives the debtors access to €140 million of the €175 million funding in Tranche 1 of the DIP financing from Strategic Value Partners, Barclays, Hayfin Capital Management and Oaktree.

A focal point of the ad hoc group’s objection was the debtors’ proposed use of DIP proceeds to exercise a finance lease purchase option to acquire full title to 8 aircraft and 7 spare engines and otherwise repay existing debt for the financed equipment – using €78.9 million to do so under the 13-week budget.

Debtors’ counsel Jaimie Fedell of Milbank Fedell maintained that the interim DIP draw is “fully non-priming” because the collateral for Tranche 1 does not include prepetition bondholder collateral. As a result, the debtors do not have to offer the noteholders adequate protection, he said. The debtors maintain that prepetition bondholder would only be primed under the €125 million Tranche 2 and €50 million Tranche 3 of the financing, which would both be subject to a dollar-for-dollar reduction by any financing provided by a non-DIP lender party.

However, David Simonds of Hogan Lovells Cadwalader, counsel for the ad hoc group, argued that the noteholders have liens and security interests on surplus proceeds arising from the aircraft finance leases, although they do not have a lien on the aircraft and aircraft equipment themselves. The contractual rights that form part of the noteholders’ collateral package are “losing a substantial amount of value” and the noteholders must be adequately protected, according to Simonds.

Fedell, for the debtors, said the ad hoc group does not have standing to object to the DIP under the bond indenture’s no-action provisions and called its objection “meritless.” It is not true that the noteholders have a “blanket lien” on surplus proceeds under the aircraft finance leases, he said. Fedell insisted the surplus proceeds would only become the noteholders’ collateral under limited circumstances after the debtors defaulted on the lease and failed to exercise the purchase option, which is not the case because “we are, in fact, exercising the purchase option.”

At this point we can afford ourselves a wry smile, given our previous concerns about the purported collateral value attached to the aircraft by the company, when it outlined the parameters of its proposed restructuring plan on Aug 11.

As my colleague Magnus Scherman outlines in his update a day after the first day hearing, buyers are getting ready to bid for Air Baltic’s ACMI business and take over the future Airbus aircraft deliveries once the Latvian flag-carrier has emerged from chapter 11 in 2027.

Aviation strategist Oleg Evdokimov is fronting a group of potential investors willing to buy Air Baltic’s Aircraft, Crew, Maintenance and Insurance, or ACMI, business, which accounted for 20% of total revenue in 2025 at €157.5 million.

As part of its ongoing chapter 11 restructuring, Air Baltic plans to cancel several purchase contracts for about 40 Airbus aircraft, signed as part of the company’s now-abandoned expansion plans. On Sept. 15, the airline’s legal counsel told a New York court there are about 20 surplus aircraft according to the company’s most recent analysis and the debtors intend to renegotiate and reject certain aircraft leases.

According to a declaration from CFO Vitolds Jakovļevs, Air Baltic has outstanding firm orders with Airbus for 40 additional A220-300 aircraft, with an aggregate list price in excess of €3 billion and remain obligated for about €92 million worth of engines yet to be delivered under their agreement with American aerospace manufacturer Pratt & Whitney.

Air Baltic can no longer fund the purchases of these assets, according to the declaration, “and the Debtors’ revised Business Plan contemplates the cancellation or indefinite deferral of these deliveries. As of the Petition Date, the Debtors have already engaged with Airbus to defer additional deliveries after 2026.”

Evdokimov argues that exiting these contracts is both unnecessary and value-destructive. His group is proposing to take over the contract for these yet-to-be-delivered Airbus A220 aircraft. That would preserve Airbus’ order book, protect client relationships and ensure the continuation of the ACMI business under stable ownership.

In the meantime, while the cost of the DIP financing is less than the eye-watering interim financing from Klirmark and Polus, Judge Beckerman viewed the aggregate DIP fees of 15% as being “on the high end of what is market,” but they were the best that could be negotiated through the DIP marketing process.

Judge Beckerman said she is available on Oct. 19 and Oct. 20 for a final DIP hearing, warning the debtors that they “might be dealing with a big priming fight.”

Trouble Brewing as Lipton Tea Co-Op Leaves Bitter Aftertaste

As we wrote in May, Lipton Tea, fka Ekaterra, hasn’t been everyone’s cup of tea.

Another Unilever spinout that has struggled as a standalone (Flora Foods is a previous example): It was bought by CVC Capital Partners Fund VIII for €4.5 billion in July 2022, with €2.38 billion of equity and €2.55 billion equivalent of euro and sterling debt.

Trouble was brewing from day one, however, for the debt financing with the borrower facing a difficult LevFin market. The underwriters led by Goldman Sachs, eventually offloaded the hung debt (paying E+475 bps and S+562.5 bps) in late November 2022, with a number of funds at an OID of 80, as reported.

In March 2024, with the business burning cash despite a pickup in volumes, Lipton raised €175 million via an add-on tranche paying E+650 bps at 97 OID, to repay RCF draws and boost liquidity. Six months later, the loans were downgraded to CCC+ as guidance was lowered.

By November 2025, after a long period of underperformance, leverage had hit 12x, leading to a €40 million infusion by sponsor CVC, via a shareholder loan.

Clearly concerned, a number of lenders had contacted our legal team about the loose bond documentation, leading to our LME Risk in Brief report last December. Sitting on the public side of the wall, I cannot see what our lawyers had said, but I understand the documentary capacity for LMEs is high.

In May, the sponsor revealed it had provided another €210 million of liquidity to the group via a combination of equity and debt. While the transaction has some LME elements, lenders’ worst fears were not realized in a deal I called LME-lite at the time. The sponsor injected additional €50 million of equity, and provided a €160 million loan paying a 9% PIK margin. The loan was issued out of Ekaterra Group IP Holdings BV, which is a nonguarantor restricted subsidiary. It sits at the Opco level and ranks structurally ahead of the group’s term loan B. Ekaterra’s intellectual property remains in the restricted group perimeter.

At the time, I expressed my shock that the IP, which is a huge chunk of the value, was never pledged for the benefit of lenders. With the business performance remaining under pressure, we reported a month later in June, that lenders had formed a SteerCo via law firm Gibson Dunn, with 60% signing up to the Co-Op.

But as we subsequently found out, this Co-Op is a special brew.

The Co-Op is structured in three layers comprising the SteerCo, Initial Parties and Subsequent Parties, which heavily favored the SteerCo. As we reported earlier this week:

“The SteerCo benefits from a carve-out premium defined as “any backstop opportunity, specified exchange ratio or treatment,” which effectively gives its members the ability to impose non-pro-rata deals and disadvantage other members of the cooperation agreement, both the Initial Parties and the Subsequent Parties. Initial Parties will have the right to participate in new money, if the need were to arise, while Subsequent Parties do not have the right to participate in any potential new money.”

This puts the SteerCo into pole position to undertake a non pro rata LME, if sponsor CVC is unable to provide further support for the business. It would be a rare example of a Co-Op agreement being used for aggressive rather than defensive purposes, with Selecta being the most high profile case study in Europe to date.

There were eight funds in the SteerCo including Elliott Advisors, Sona and Beach Point, with the group subsequently admitting CVC Credit, taking the total number to nine members. CVC Credit, which owns a sizable position in the euro-denominated TLB will not have any voting rights but would benefit from any potential non-pro-rata deal.

At this point it is worth mentioning that this isn’t a regular leveraged loan deal with the bulk of holders being CLOs, since it was a hung deal and wasn’t broadly syndicated. As a result it did not feature a restrictive White List common in most European LBOs. Several opportunistic funds with large positions are present in the debt, and could offer an LME exchange deal to sponsor CVC in return for a minority stake.

Given this prospect, and the tiered structure of the Co-Op, other lenders are reluctant to participate and no further lenders have joined. I can understand why their paper is probably more marketable if it is unencumbered by a Co-Op.

But as we’ve seen in other situations, there are plenty of ways of circumventing sacred rights.

The chances of an LME are rising given the latest numbers. Demand for the group’s core product, black tea, is continuing to decline and the trend is not reversing. Adjusted EBITDA fell another 16% year over year in Q2 on the back of a 6% decline in the top line and higher cost of goods sold. As a result, the group expects to generate just €260 million full-year 2026 adjusted EBITDA, which is below the €280 million it had budgeted.

In response, the group cut back on marketing spend and trimmed overheads but adjusted EBITDA still fell to €48 million from €57 million over the same period, driven by a 7% jump in COGS, mainly as a result of raw tea cost inflation.

The weaker earnings resulted in an intensified rate of cashburn, which accelerated to €79 million negative free cash flow in the second quarter from €38 million negative free cash flow in the first quarter, eating into the €208 million liquidity boost provided by sponsor CVC during the second quarter.

The liquidity cushion remains high, and with the earliest maturity in December 2028, for the €375 million RCF, there is no immediate trigger. Lipton had €222 million of remaining liquidity as of June, comprising €142 million of cash as well as €80 million available under its RCF subject to a 9.5x senior secured net leverage test when more than 40% is drawn.

Lipton reported 11.4x net leverage based on €280 million LTM EBITDA adjusted end-state EBITDA. Actual net leverage based on €252 million LTM adjusted EBITDA was 12.7x.

To avoid a restructuring, and get an A&E away in say early 2028, Lipton needs to see a significant improvement in EBITDA. Management had presented a new business plan to lenders in May developed by the new management team under CEO Marc Busain that addresses Lipton’s past issues and accelerates development to drive strong future growth. Management’s base case projection is 5% compound annual growth rate for revenues by 2029 and margins of 22-24%, which would translate into about €380 million of adjusted EBITDA.

Assuming net debt remains the same, that would result in 8.4x leverage, which might just be enough to get an A&E away, but it would be a difficult negotiation and doesn’t provide much of a return for CVC for its previous equity infusions.

That said, the sponsor does have the valuable IP and a loan which is structurally senior within the debt structure, which could provide negotiating leverage in restructuring negotiations.

In conclusion, trouble is brewing at Lipton, the pot is being warmed, but it takes patience to make the perfect cup of tea.

Thames Water files for RP2, but RP3 prospects are murky

Yesterday, there was some excitement in Octus Towers, when we saw that Thames Water Utilities Limited had filed two part 8 claims for an upcoming Part 26A.

Could they have finally reached agreement with the London & Valley Water consortium (backed by certain Thames Water creditors) and the long-awaited debt restructuring is finally being launched?

No, we could stand down, the company confirmed in a statement that these plans are intended to extend certain debt maturities and provide waivers while it negotiates with Ofwat and the government.

A Thames Water spokesperson said:

“As set out in our recent Annual Report, we are seeking extensions to certain debt maturities and related waivers to provide the time needed for those discussions to continue. The claim forms filed with the Court today are a preliminary step in that process.”

In July, Thames Water warned that it expects to launch a scheme of arrangement or restructuring plan to extend the maturity on its debt (potentially all of its debt) beyond September 2027 if it is unable to launch its holistic second restructuring plan, or RP2, by Oct. 1, 2027. Thames’ earliest debt maturity is currently March 2027. The company gave a second deadline of April 1, 2027. If RP2 is not launched by then, Thames expects to launch a scheme or plan specifically to extend its super senior debt beyond October 2027.

Clearly an agreement between the consortium and Ofwat (and ergo the government) is unlikely by Oct. 1, 2026, hence the launch of RP2 to extend the maturities.

The Thames’ Class A creditor consortium, which branded itself as London & Valley Water last year, had been locked in protracted negotiations with Ofwat since June 2025 over sign-off for its business plan and restructuring proposal. The most recent proposal envisages Thames Water obtaining £3.35 billion of new equity and up to £6.55 billion of new debt. Existing Class A debt would be subject to a 30% write-off, with Class B debt written off in full. The consortium has also offered the government a golden share in the company as part of its proposal in order to ward off a growing risk of nationalisation, as reported.

The pressure on the government and Ofwat to reject the proposal continues to rise.

Yesterday, a cross-party committee of U.K. lawmakers urged the U.K. government to block creditors from taking full control of Thames Water. The Environment, Food and Rural Affairs Committee Chair Alistair Carmichael urged the government and water regulator Ofwat to withdraw from £10 billion takeover negotiations with the creditor consortium.

Fearful of creditor legal challenges the government has been running down the clock, looking for more certainty over the triggers for a special administration – which are a license breach or insolvency. Thames warned that it will run out of funds by the end of this year and has said it will need to upsize the super senior facility by £2.4 billion in multiple tranches to cover liquidity needs from around December 2026 until October 2027.

To secure a going concern opinion for its FY25 annual report, the creditors had issued a comfort letter, offering to provide additional liquidity to fund the business through a restructuring.

Criticism of the cost of the £3 billion of super senior financing provided via RP1 to bridge to a restructuring are well documented, and the terms of a new £2.4 billion facility would be closely scrutinized.

Professor Dieter Helm gave written evidence to a parliamentary select committee saying that the prior financing should not have been approved by the Ofwat under the water regulator’s general duties to protect customers and to provide for the efficient financing of efficiently carried out functions. Helm said:

“If the regulator fails to agree to these arrangements (and it should not agree to these), the company would be insolvent. In other words, whether Thames Water is insolvent depends upon whether the regulator allows the short-term loans.”

It is notable that the company didn’t mention the new facility in its response to Octus, which suggests that this is still under negotiation.

Provision of new money is arguably a double edged sword for the creditors. They hold the power to extend the runway for the business and avoid a trigger for a special administration filing, but they will likely want to secure concessions and assurances before providing it. In an ideal world they would want to reach agreement with Ofwat over their recap plan, before committing funds to bridge to RP3.

But time is short, and the prospects are as murky as the mighty river that gives Thames Water its name.

The new money terms and its approval by Ofwat are likely to be the next battleground and, if not agreed, it could provide the definitive insolvency trigger for SAR, that the government needs. The upcoming water bill – which is due to be presented in the latest parliamentary session – reportedly contains measures which will make it easier to place water companies into a SAR. Whether this comes quickly enough to be used for Thames, is uncertain.

I assume that a funding proposal to provide the £2.4 billion of fresh liquidity could still be tagged onto the latest filings to extend the debt, as seen with RP1.

In terms of timeline for RP2, with a need to secure funding by December and to avoid a default on March 2027 debt, we would expect a launch in the next few weeks, with a convening hearing in late October, early November.

Last Week’s Highlights

Key Analyses

In our analysis tearsheet for Multiversity, the Italian online university group remains a highly profitable, low capital expenditure business with recurring tuition revenue and ample liquidity. However, the operating model no longer scales as efficiently as when the business bondholders underwrote it in 2024, as new regulatory requirements drive materially higher academic headcount and delivery costs.

Revenue and student demand have remained broadly resilient, while the costs required to serve students have increased. Italy’s Ministerial Decree No. 1835 of Dec. 6, 2024, which changed the rules governing distance-learning for the 2025/26 academic year, requires more teaching to be delivered synchronously (live, at the same time) rather than asynchronous (on demand), increasing personnel costs

In our restructuring analysis of Lowell’s we say that the resultant capital structure is materially simpler and less levered, but in Octus’ view it leaves creditors exposed to deterioration in Estimated Remaining Collections the same underlying risk that contributed to Lowell requiring two restructurings in little more than a year. In particular, Arini may be in a tight spot, given its existing large exposure across the debt stack, which the new deal further increases given the fund – alongside certain other investors – is backstopping the new money provision to the tune of £520 million.

With sale rumours emerging for Flora Foods again earlier this week, our covenants team undertook a portability analysis for the KKR-owned plant-based spreads manufacturer.

Sticking with portability, our covenants team produced a Covenants 101 on portability – it explains a frequently overlooked provision that might seem harmless at first glance, but can carry significant implications: the uncapped restricted payments basket in connection with a portability event.

Key Stories

Our editorial team provided some important updates on a number of high profile stressed/distressed situations this week:

To counter VMED O2 investor concerns about business performance and a possible LME, Liberty Global executives conducted extensive investor meetings at this week’s Goldman Sachs conference in London. Led by CFO Charlie Bracken, the purpose of the meetings was to signal to a skeptical credit market that both shareholders – Liberty and Telefónica – are treating U.K. telco Virgin Media O2’s overlevered capital structure with urgency. VMED expects to reduce leverage to 4x-5x through a combination of organic and inorganic actions involving cost cutting, capital expenditure cuts and potential asset sale

Stark sponsor CVC is offering to inject in the region of €250 million of equity to support an amend-and-extend deal to term out the Denmark-headquartered building materials group’s maturities. The group is currently in talks with its biggest lender Apollo to negotiate the terms of the A&E. Term loan B lenders lined up Milbank ahead of talks over dealing with the group’s maturities. Stark’s €1.345 billion term loan B is due May 2028. It also has a non-fungible €450 million TLB also due May 2028, while its €371 million RCF matures in November 2027.
RCF lenders which include BNPP, Citi, Credit Suisse, Goldman Sachs, Danske, Nordea, JPM, NatWest, Lloyds and Nykredit have heard legal advisor pitches.

German sports surfaces provider Sport Group’s EBITDA declined by about 5.5% year over year in the second quarter of 2026 despite a 3.3% bump in revenue over the same period. The decline in earnings also came alongside a significant reduction in non-cash adjustments to the EBITDA. Lenders had expressed concerns over prior heavy adjustments to the group’s EBITDA. Additionally, the company also revised down its full year 2025 and first quarter 2026 earnings, bringing EBITDA down by a combined €10 million across the past five quarters. The restatement was due to a change in the accounting criteria. The company’s €550 million TLB due July 8, 2031 dropped steeply since the start of August, from the low 80s to its current price at 70.5/71.07.

Partners Group-backed Dutch industrial belting producer Ammega reported a marginal year-over-year rise in adjusted EBITDA for the second quarter ended June 30, 2026, after restating earnings for the prior year second quarter. However, earnings compared with the actual adjusted EBITDA the group reported last year were down 12.9%. For the full-year 2026, Ammega is targeting a return to top-line growth by winning new customers and expanding business with existing customers. It also aims to recover EBITDA margins back to 20% and grow adjusted EBITDA, as well as turn free cash flow breakeven.

Two interesting secondary market moves:

Danish telecom operator TDC Brands’ €550 million 8% senior secured notes due April 2031 have come under pressure as investors are weighing costs linked to the group’s transition to a future-proof services model amid continued decline in the legacy business. The senior secured notes, which priced with an 8% coupon at par in April 2026 and are rated B by both S&P and Fitch with stable outlooks, have dropped four points over the last two weeks post its Q2 earnings release to 96, yielding about 9%.

The move confirms our views in our primary analysis of TDC Brand’s SSNs published in April, when Octus highlighted that the credit is constrained by negative levered free cash flow, a capital structure that relies on sponsor injections and potential RCF drawings to bridge the gap to break even cash flow in a mature market, and a deleveraging path that is contingent entirely on management execution rather than structural tailwinds.

German pharmaceutical company Cheplapharm’s bonds have been on a rollercoaster ride over the past couple of weeks, sliding about 6 points on underwhelming Q2 results before rebounding to claw back the losses this week following French pharma giant Sanofi’s asset-for-equity announcement. Following the disappointing Q2 earnings, their €950 million senior secured notes due 2032 dived from above par on Aug. 28 to as low as 94.83 on Sept. 11. The trigger was Cheplapharm’s outlook downgrade due to production delays of Zyprexa, a drug the firm acquired in 2023 that is used to treat schizophrenia and bipolar disorder

Key Events and News

Mates and Rates – despite Donald Trump hiring him to cut rates, Federal Reserve Chairman Kevin Warsh hiked rates this week. Many of us, who saw the 32% odds on Polymarket of the President of the United States insulting the Fed Chair, were waiting for his response.

When it came, the rant and its economic basis, caused one wag to quip that it made President Erdogan, famous for his odd economic views, look like a Nobel economics prize winner.

No direct insult to Kev, but the bet is until Sept. 30, 2026, so there is still time to pay out.

The other big story was the AI companies offering to slow down the pace of development, while they built out more guardrails to ensure that their agents don’t go rogue and kill humanity. As Trump says that he is smart enough to protect us and was top in his class (there is a good attempt to fact check it here), Bloomberg’s Matt Levine puts it nicely:

“It is a little strange that an industry is overwhelmingly saying “regulate us, otherwise in our pursuit of mammoth profits we will kill everyone,” and the US government is like “nah we’d rather you have the profits.” But we live in strange political times.”

Levine hints (my view too) that the slowdown is collective, and is driven by helping them spend less on compute and charge more from the frontier models. But if one AI firm slowed down, the others would eat its lunch. And if they colluded to do so, it would trigger an antitrust violation, but if they do so for safety reasons, it may be okay. Levine says “What if the well-meaning humans in the best position to stop rogue superintelligence are willing to work together to stop it, but they can’t because of antitrust law?”

The Trump Kennedy Center is in financial trouble. The Board of Trustees has voted to immediately close the arts institution’s main building.Trump, who is its Chairman, announced the decision on Truth Social. Just hours earlier, a district court ruled against the Board’s latest effort to add Trump’s name back to the building – in recognition of his role in the planned renovations. The leadership has claimed that the cultural center was on the brink of bankruptcy. Octus lawyers will be licking their lips on this one.

Private equity firms, including PAG, Warburg Pincus and Trustar Capital, are reportedly considering fresh bids for the roughly 51% stake in Hong Kong-listed Evergrande Property Services Group Ltd. held by China Evergrande Group and its CEG Holdings, Bloombergreported today, Sept. 18, citing people familiar with the situation.

Former Gupta asset, well known to our court reporters, Speciality Steel UK is set to follow British Steel and be nationalized. According to the Guardian Jonathan Reynolds, the business secretary, said officials would “work towards” acquiring the company to protect the jobs of its 1,300 workers in Rotherham, Stocksbridge and Brinsworth in South Yorkshire and Wednesbury.

Just 10 years ago, Leicester City incredibly won the Premier League to upset the football establishment. My beloved Brighton have had an incredible start to this season – only Leeds have prevented us scoring three or more goals in any of the past six games – but I am not dreaming of a Premier League title, that is a once in a century event.

A decade on from that win, languishing in League One (two divisions down), Leicester is flirting with administration, as the club is seeking buyers with a sticker price of £200 million.

As outlined in these pages before, Leicester had mortgaged itself up to the hilt, on player transfer fee receivables, premier league TV rights, mostly to Macquarie to the tune of £98.7 million. There are assets of value, with a state of the art training center costing £85 million that could be monetized. If it is placed into administration, Leicester could face a 12-point deduction, putting it at risk of relegation to league two.

And finally, saving the best for last, yesterday, together with my colleagues Connor Lovell, Shan Qureshi and Chetna Mistry, we presented No-one expected the Spanish Imposition, our webinar on Grupo Antolin’s controversial Spanish Restructuring Plan. Click HERE to watch the webinar replay and access the slides. Click HERE to view the additional webinar resources.