Selecta 1L Noteholders to Get Bulk of Company’s Equity; Deal Implementation Expected Through Share Pledge Enforcement, Distressed Disposal 

Relevant Document:
April 30 Press Release

Selecta’s first lien noteholders will get the bulk of the Swiss vending machine operator’s equity as part of a comprehensive recapitalization that will provide the Swiss vending machine operator with €330 million in new funding to support its long-term business plan, sources told Octus, formerly Reorg. In its April 30 release, the company said that ownership of the group will shift to a consortium of Selecta’s “long-term institutional investors” through the transaction, which is expected to close in the second quarter.

According to the deal, Selecta’s first lien notes will be reinstated into new five-year super senior notes at a 15% discount, while the second lien debt and preference shares will be fully released, as reported. Selecta’s first lien bonds are quoted at 38-45, with the second lien at 7-10, according to Solve Advisors.

Octus concluded as early as June 2024 that the second lien notes would need to be equitized. Weak third-quarter earnings subsequently made it more likely the first lien debt would also need to be partially addressed.

Some buy-side sources are speculating on whether the company’s creditors who are members of a coordination committee, or CoCom, will have the opportunity to roll up some of their existing debt if they decide to participate in the new money – although the seniority of the new money is still unclear. These creditors include funds such as Man GLG Group, Invesco US and SVP, which have holdings in both the first and the second lien instruments. This scenario would put non-CoCom creditors in a less favorable position, the sources added. So far, these speculations have not been confirmed, according to sources close to the situation.

As reported, the €330 million new money featured in the plan will be open for contribution also to creditors outside the CoCom provided that they contribute a “sizable” chunk of it. Sources however expect the majority of the new money to be subscribed to by the CoCom members.

The company said the new funding will refinance the group’s existing RCF and strengthen liquidity by providing significant cash to the balance sheet. The transaction will also cut Selecta’s outstanding debt by about €1.1 billion upon completion, while the maturities for the remaining debt securities will be extended to the second half of 2030.

According to sources, the €1.1 billion debt reduction will stem from the release of the company’s €343 million euro equivalent of second lien notes, the 15% haircut to the company’s first lien notes, equating to about €114 million, and around €671 million of preferred shares liabilities, which include some accrued PIK component.

Sources said that some hedge funds are considering getting involved now into the first lien debt and then potentially litigate the deal if they are not treated similarly to the CoCom lenders.

The transaction is being implemented through a controlled enforcement process. Sources said they expect this to happen via a share pledge enforcement and distressed disposal in the Dutch courts. A cleansing statement is expected in the coming weeks or month, they added.

On April 22, Selecta launched a consent solicitation for its euro- and Swiss franc-denominated first- and second lien notes due 2026, seeking approval to increase the numerical permission in the credit facilities basket in each indenture to €200 million from €175 million, and remove the total yield per annum limitation from such basket. Certain other conforming amendments may be made to provisions of each indenture and the notes, if necessary. The consent solicitation was set to terminate on May 2, at 4 p.m. BST.

Details of the first and second lien notes are below:

Initially, two separate creditor groups formed for Selecta: a first lien group advised by Weil Gotshal & Manges, and another cross-holder group of the first and second lien notes and preferred shareholders assisted by Milbank as legal advisor and Houlihan Lokey. The two groups then started working together, signing a cooperation agreement aimed at increasing their leverage in negotiations with the borrower against any potential aggressive liability management exercise.

Selecta is being advised by PJT Partners and Kirkland & Ellis, while Paul Hastings is legal counsel to sponsor KKR. Goldman Sachs has also been involved in a potential sale of the company. Selecta appointed Bob Rajan, an independent director, to its board to support its restructuring discussions.

In January, the company secured €50 million of additional liquidity via a new credit facility provided by some of its existing noteholders. The additional funding added to Selecta’s cash position of €73 million as of Dec. 31, 2024.

As reported, some of Selecta’s largest creditors went restricted in December to engage with the company and its sponsor, KKR, over options to tackle the group’s 2026 maturities.

Octus lawyers who have reviewed the terms of Selecta’s first lien and second lien notes consider the documentation to be tight, consistent with debt put in place in the context of a restructuring and with significant restrictions on the amount of super senior or priming debt that can be raised without majority first lien and second lien bondholder consent. Subscribers to EMEA Covenants by Octus can access the covenant analysis HERE.

Selecta’s capital structure as of Sept. 30, 2024 is below: