Rekeep Approaches Investment Funds for Private Credit Deal on Remaining Debt After Potential Energy Business Sale While Elliott Knocks at Company’s Doors With Refi Proposal

Relevant Documents:
Q2 Press Release
Q2 Presentation
Q2 Report
Q2 Transcript

Italian facility management services company Rekeep has approached investment funds to refinance what will remain outstanding of its €370 million bond after a potential partial repayment of the notes with proceeds from the possible sale of the group’s energy business, sources told Octus, formerly Reorg.

This type of deal would entail a private credit solution, sources noted. They added that the company is aiming to obtain some debt paying no more than high single digits.

The company’s advisors, Vitale and UniCredit, are asking some creditors to go private to better define the terms of the deal, sources said.

Meanwhile, investment fund Elliott Management has approached Rekeep to offer to refinance the whole debt structure of the company, sources close to the situation said. This deal would not entail a sale of Rekeep’s energy business, sources added.

Rekeep has initially balked at the “expensive” interest requested by Elliott on its proposed debt refinancing deal, sources said.

A third option for Rekeep would entail the team-up of a group of its holding company minority shareholders, which launched an ongoing lawsuit against the management, with a third-party investor to put forward a proposal to invest new equity in the business, overhaul the company’s capital structure and change its governance and ownership, as reported.

Despite the existence of some funds interested in the above strategy, the potential deal – which would lead to a partial repayment of the company’s debt and the refi of the rest, with no sale of its energy business – is still at early stages and complicated by the shareholding dynamics of the group.

Rekeep’s energy business has gathered the interest of three corporates: utility firm Hera, Snam-backed efficiency platform Renovit and Italian energy efficiency solutions firm Getec, with offers in the range of €200 million to €250 million, while Rekeep values the asset at about €300 million, as reported.

The disposal of the energy asset would help Rekeep address its looming bond maturities. The company has a €370 million bond due February 2026 as well as €75 million super senior RCF due August 2025, undrawn as of June 30.

Rekeep has been working on the sale of its energy business, aiming to complete the disposal by the end of October and then move ahead with a debt refinancing before the bonds become current in February. If the energy business sale is followed by a debt refinancing that’s not vanilla, a potential buyer might incur into clawback risks, sources pointed out.

Some sources noted that the energy business’ volatility and the absence of a consolidated carve-out makes the sale plans complicated. Selling that business would deprive Rekeep of one of its sources of growth, they added. Additionally, the whole facility services management sector is proving challenging, with low growth and sluggish profitability, according to sources.

The company could try to sell its Polish division but proceeds from that disposal would be insufficient to cover the refinancing needs, according to sources. Additionally, as the Polish asset has been driving growth, selling it would have a significant impact on the overall group’s performance going forward, sources said.

On the company’s second-quarter earnings call on Aug. 29, management said that it’s working with advisors to look at options to tackle the company’s looming bond maturities, including a refinancing as well as asset disposals or a carve-out of activities coupled with a partial refinancing consisting of a repayment of part of the notes and an extension of the remainder. Management added that the final plan will depend on market opportunities, and that it is hoping to make an announcement on the refinancing by the end of the year.

The company could fall short of funding when refinancing its bonds, some sources previously noted. The gap is estimated at between €96 million to €147 million, and Rekeep might address it via equity contributions and asset disposals, as confirmed by management.

In March, Octus reported that Rekeep could opt for a bond-to-bond refinancing or, alternatively, pursue a refinancing through bank debt if it is able to significantly reduce leverage after asset sales.

Holdco Lawsuit

Debt refinancing is not the only front where Rekeep finds itself busy. As mentioned above, a group of its holding company minority shareholders is considering partnering with a third-party investor to put forward a proposal to overhaul the company’s capital structure and modify its governance. The looming bond maturities could act as a catalyst for the process to kick off.

The minority shareholder group is engaged in a legal dispute with Rekeep’s holding company, MSC Società di Partecipazione tra Lavoratori SpA, as reported. In February, the shareholder group submitted an urgent appeal to the Court of Bologna, citing “well-founded suspicion of serious irregularities in the fulfillment of duties by [MSC’s] directors and auditors,” pursuant to article 2409 of Italy’s civil code. The shareholder group, which is assisted by Freshfields, owns 11.26% of MSC shares. In its appeal, it mentioned “serious management irregularities” committed “by the current directors of the company MSC Società di Partecipazione tra Lavoratori as well as the total inertia of the board of auditors.” MSC denied any wrongdoing in response.

Some sources earlier pointed out that the shareholder infighting at Rekeep’s holding company level might stem from a possible disagreement between the current management and the group of belligerent shareholders over the best strategy to pursue for the future of the group, including potential M&A operations, or sale of a majority stake in the company.

In mid-March, Rekeep appointed a new board of directors with seven members, three of whom are independent directors. On the second-quarter earnings call on Aug. 29, management said that the shareholder dispute is still ongoing, with nothing new to report to date.

Valuation Scenarios

Octus, estimates the valuation of Rekeep’s energy business to be at least €100 million based on conservative assumptions with the central point of €180 million as shown in our scenario table below:
 

In our view, the energy management business’ EV/EBITDA multiple can vary from 5x to 7x, depending on market conditions, with a midpoint of 6x, which aligns with the average for trading peers, such as Engie and Veolia, both of which operate in similar energy businesses and are not integrated facility management providers.

We estimate the EBITDA from the energy business at about €30 million, as discussed in our previous article HERE.

Rekeep’s reported net debt amounted to €490.4 million as of June 30 (including €38.2 million potential debt) with net leverage of 4.1x, compared with €461 million as of Dec. 31, 2023, with a reported net leverage of 3.6x.

A capital structure of Rekeep is shown below: