Transcom’s Coercive Exchange Offer Designed to Extend Maturities Has Pre-Approval From 86% Noteholders; Hold-Outs Seeking to Maintain Temporal Seniority Risk Losing That (and a Lot More) If 90% Achieved

Relevant Items:
Existing Notes Primary Covenant Analysis
Consent Solicitation Press Release

Transcom Holding AB launched a consent solicitation on Nov. 17 to exchange all its €380 million 5.25% senior secured floating-rate notes due 2026 (“Existing Notes”) into new senior secured floating-rate notes maturing Jan. 31, 2030, (“New Notes”) to address the upcoming maturity of the Existing Notes.

In addition to the Exchange Offer, as a way of coercing noteholders to exchange, Transcom is also seeking certain amendments to the terms of the Existing Notes, that would strip covenants, remove credit support and push out maturities under the Existing Notes beyond the New Notes, depending on the levels of consents received. The material terms of the consent solicitation are as follows:
 

Noteholders who vote for the proposed amendments and tender their Existing Notes before 4 p.m. London time on Dec. 1 (“Early Tender Deadline”) will receive €850 in principal amount of New Notes and €150 of cash (the “Early Tender Consideration”) and an early consent fee of €5 in cash (“Early Consent Fee”) for each €1,000 principal amount of Existing Notes tendered and not withdrawn, plus accrued and unpaid interest up to but excluding the the Settlement Date.

Otherwise, bondholders who tender their Existing Notes and vote for the proposed amendments after the Early Tender Deadline but by or before 4 p.m. London time on Dec. 16 (the “Expiration Time”) will receive €1,000 principal amount of New Notes for €1,000 in principal amount of Existing Notes tendered and not withdrawn (“Exchange Consideration”), plus accrued and unpaid interest up to but excluding the Settlement Date to be paid in cash. There will be no consent fee due to Existing Noteholders who tender their bonds after the Early Tender Deadline.

The Early Tender Consideration or Exchange Consideration will only be paid if the settlement date occurs, which will be within three business days of the Expiration Time (“Settlement Date”).
 

In connection with the Exchange Offer, the company is also requesting the following amendments to the Existing Notes indenture:
 

• Strip substantially all covenants and other obligations under the Existing Notes indenture that can be modified with majority noteholders’ consent (the “Proposed 50% Amendments”);
   
• Release all the collateral for the Existing Notes, and remove any related obligations or events of default with consent of holders of at least 80% of the outstanding principal amount of the Existing Notes (the “Proposed 80% Amendments”); and
   
• Release all the guarantees of the Existing Notes; extend their maturity date to Jan. 31, 2031; and remove substantially all covenants and other obligations that require consent of holders of not less than 90% of the outstanding principal amount of the Existing Notes (the “Proposed 90% Amendments”).
   

The company is expected to issue up to €323 million in principal amount of New Notes if the Settlement Date occurs. The New Notes will bear interest based on Euribor with a 0% floor, plus:
 

• From the Settlement Date to (and excluding) the first anniversary of the Settlement Date, 7.75%, of which up to 1.75% may be paid as PIK Interest at company’s option;
   
• From the first anniversary of the Settlement Date to (and excluding) the 2nd anniversary of the Settlement Date, 9.25%, of which up to 3.25% may be paid as PIK Interest at company’s option; and
   
• From the second anniversary of the Settlement Date, 11%, of which up to 5% may be paid as PIK Interest.
   

The consent solicitation states that the covenant terms of the New Notes will be similar to those of the Existing Notes. However, we have not reviewed the Exchange Offer memorandum.
 

 

• Make-whole: The New Notes may be redeemed prior to Dec. 15, 2026, at par plus a “make-whole” premium not specified.
   
• Call schedule: During the 12-month period beginning Dec. 15 of the following years:
  • 2026: 101%; and
  • 2027 and thereafter: 100%.
     

The New Notes will be senior obligations of the company and guaranteed by the guarantors of the Existing Notes. The New Notes will be secured by certain shares, receivables and other assets of the company and the guarantors. This would be better than collateral for the Existing Notes, which was limited to share security.
 

Occurrence of the Settlement Date is subject to receipt of consent to the Proposed Amendments from, and exchange of Existing Notes by, holders representing not less than 90% of the outstanding principal amount of the Existing Notes by or before the Expiration Time (the “Minimum Condition”).

The company states it has pre-agreed the terms of the Exchange Offer and Proposed Amendments with holders of 86% of the outstanding principal amount of the Existing Notes.

Existing Notes tendered can be withdrawn on or before the earlier of 4 p.m. London time on Dec. 1, or the time at which the Existing Notes trustee is notified by the company that the Minimum Condition has been met.
 

With noteholders holding 86% of the outstanding principal amount of the Existing Notes pre-agreeing to its terms, Transcom’s Exchange Offer seems to be well on the road to success. While the Proposed Amendments are designed to be coercive in nature, a saving grace for noteholders is that they are being offered on a pro rata basis, which cannot be taken for granted these days (just ask investors in Victoria plc and Lowell).

Noteholders considering holding-out will have to carefully assess the following risks and benefits of doing so:
 

• If the company does not achieve 90% consent, at current levels hold-outs still stand to lose all collateral (and will accordingly be subordinated to the New Notes up to the value of the collateral) and the benefit of most, if not all, negative covenants. On the other hand, hold-outs will retain temporal seniority as the company cannot amend “money terms” including the maturity date without 90% noteholder consent potentially allowing them to exit at par in 2026 (on the assumption that the company would not default on this small leftover stub and risk toppling the entire structure). We assume the company can unilaterally reduce the Minimum Condition on the basis of the following statement in the press release: “The Company reserves the right, in its sole discretion, at any time to waive certain conditions to the Consent Solicitation or the Exchange Offer, extend the Expiration Time or amend the terms of the Consent Solicitation or the Exchange Offer.” However, this is a point worth confirming under the Exchange Offer Memorandum – if the company can’t waive or reduce the 90% Minimum Condition without going back to the 86% noteholders who have pre-agreed to terms of the Exchange Offer and Proposed Amendments, the hold-outs actually may have more power than they think they might.
   

• If the company achieves 90% consent, hold-outs stand to lose all the above (and all guarantees will also be released). In addition, maturities will be pushed out to January 2031 beyond the New Notes thus denying them the temporal seniority they are holding-out for – a scenario that is the stuff of nightmares.
   

Given the significant percentage of noteholders who have already agreed to the terms of the Exchange Offer and Proposed Amendments, it would take a brave investor to hold-out.

Disclosure: Octus and Lowell are both Permira portfolio companies.