Pro-Gest Reaches Preliminary Debt Agreement With Carlyle, Bondholder Ad Hoc Group; Considers Implementation Routes

Relevant Document:
March Company Release

Italian paper and packaging company Pro-Gest has reached a preliminary debt agreement with creditor Carlyle and an ad hoc group of bondholders, sources told Octus.

Parties have agreed a framework agreement, which still needs to be formalized, and lawyers are now focusing on the implementation phase, which may last a few months, the sources said.

Pro-Gest’s capital structure consists of €350 million of debt at the level of its operating companies, which includes €200 million of secured notes issued to Carlyle and credit lines from local banks. In addition to the operating company debt, there are €250 million in senior notes placed at the holdco level. These notes are unsecured and guaranteed by five subsidiaries of the issuer, Pro-Gest SpA: Cartiera di Carbonera SpA, Tolentino Srl, Cartitalia Srl, Cartonstrong Italia Srl and Trevikart Srl.

The preliminary agreement is expected to feature an amend-and-extend of the existing maturities – both Carlyle’s and bondholders’ notes – and a 2025-2029 debt repayment plan, which will be based on proceeds coming from the disposal of noncore plants, real estate and other financial assets. Bondholders and Carlyle will have a different repayment schedule based on proceeds coming from different asset sales, sources said.

As part of the deal, the Zago family will remain in control of the business, according to sources.

Unsecured bondholders are expected to get some security, with different assets pledged against Carlyle and noteholders’ debt, respectively, the sources said. The debt will be extended in two phases: a first extension will be followed by a second one if the company is able to repay a certain amount of debt by a specific date, they added.

Holders of the €250 million unsecured 3.250% notes will also receive a coupon uplift – unlike creditor Carlyle, whose debt coupon will marginally decrease, sources said.

As reported, Pro-Gest secured a six-month extension of its composizione negoziata della crisi d’impresa, or CNC, which was set to expire on July 8. The CNC lasts 180 days from the acceptance of a court-nominated expert, and can be extended for a period not exceeding a further six months. The company entered the CNC on Jan. 10 “to reshape the group’s capital structure and in order to safeguard the enterprise value to protect creditors and all stakeholders.”

Pro-Gest is working with Lincoln International as advisor to sell its Mantova paper mill. Mantova, alongside the Maranello plant, are considered the group’s crown jewels. Also, the company recently finalized the sale of its stake in Scart Imballaggi Srl to Tri-Wall Italia Packaging Systems.

Pro-Gest has been in default since mid-July 2024, after its subsidiaries Cartiere Villa Lagarina SpA, Tolentino SpA and Cartitalia SpA decided not to make interest payments on their respective notes on the due date of June 30. In addition, an event of default occurred after a missed interest payment on June 15, 2024. Pro-Gest’s €250 million unsecured bonds matured on Dec. 15, 2024.

Since the end of 2023, the company has been in discussions with an ad hoc group of holders representing the majority of the senior unsecured notes and with funds managed by The Carlyle Group, holders of the PPNs. Members of the ad hoc group of unsecured noteholders include Cheyne Capital, DWS, Converium, JPM Asset Management, Goldman Sachs Asset Management and Valiant Asset Management, as reported.

After the company entered CNC, small chunks of the bonds traded at about 15. Since then, the price of the bonds has rebounded to 35-36, as parties started to closely engage in negotiations.

Back in 2023, Pro-Gest tried to dispose of both its Mantova and Maranello assets, before announcing in December that year that it would pause the process and instead focus on a refinancing of its debt. The company’s CEO Francesco Zago at the time confirmed that Mantova and Maranello were for sale, but underscored that it was not the right time to sell these assets considering the weak market and substantial pressure on the company. He added that the company would keep its options open, noting that Pro-Gest could maximize value for all stakeholders by postponing the sale to after the bond refinancing.

Pro-Gest’s restructuring proposal has been long awaited since the company and its latest Chief Restructuring Officer, or CRO, Angelo Rodolfi started working on the company’s new industrial plan and identified some assets to sell. Rodolfi’s appointment as CRO at the start of July 2024 came after Sergio Iasi, considered close to creditor Carlyle, resigned from the role.

In 2024, the company’s board and management experienced some turbulent times. In August, just six months after the previous reshuffle, the company appointed a new board of directors. On Oct. 17, the chairman of the company’s board Domenico Livio Trombone and independent director Massimo Lucchini announced their resignations. On Oct. 25, the group appointed Giordano Maria Cogliati as CFO, while Fabio Trabucchi and Cogliati were nominated as new directors to the board. The company also named Rodolfi as chairman of the board.

The company is currently assisted by Chiomenti as legal advisor as well as Afry and Studio Bagni as consultants. Previous advisors have either been “suspended” or are no longer involved in the negotiations.

Pro-Gest’s ad hoc bondholder group, holding over 50% of the unsecured bonds, is working with Houlihan Lokey and Linklaters. Carlyle is advised by Rothschild, Milbank and Gattai.

Previously, the company and its creditors have been holding talks with funds King Street and Pillarstone to team up and provide fresh funds to the company.

Contacted by Octus, Pro-Gest declined to comment on the matter.