The Restructuring of Metalcorp’s €140 Million Bond
Munich-based restructuring boutique DMR Legal advised the bondholders of Metalcorp on the restructuring and extension of a €140 million bond. Norton Rose Fulbright advised Metalcorp.
Metalcorp is a metals and minerals group that operates production and mining facilities across Europe and Africa. Aluminium, metals and concentrates comprise its primary business areas, three primary business areas, with its bulk goods and ferrous metals segment also contributing around €254.8 million in sales in 2021. Company-wide sales revenue for the first half of 2022 rose 68% year on year to €511.1 million.
In early October 2022, Metalcorp announced that it could not afford the repayment of the bond (originally issued in 2017 for a period of five years) that was now due. Following the successful restructuring, this bond has now been extended by one year. Investors will receive interest of 8.5% for this additional year compared to 7% for the originally agreed term. A number of security mechanisms and termination rights have also been defined, in addition to mandatory partial repayments at the end of March and May 2023.
The new arrangement was approved by an overwhelming majority at a second creditors’ meeting in November 2022. The creditors, a majority of whom are private investors, had pooled their interests with the help of the Protection Association of Capital Investors (SdK), which submitted the relevant motions at the meeting. The agreement reached was subject to a one-month objection period that has expired without any objections raised. Metalcorp is also running another five-year bond (2021/26) for €300 million, on which the bondholders are advised by Kirkland & Ellis.
DMR Legal advised the bondholders of Metalcorp with a team comprising partners Dr Tobias Moser, Dr Thomas Ressmann and Dr Maximilian Degenhart, as well as associate Fabian Wirths.
Dr Tobias Moser, DMR Legal
Can you tell us more about the role that you and your team played during the restructuring process?
Our team was representing a group of larger institutional investors mostly consisting of asset managers and pension funds. We worked closely with German investors organisation SdK, who was organising many private investors.
After the surprising default of Metalcorp, we started organising the bondholders and approaching Metalcorp for negotiations on the restructuring process. We held two investor conferences for the bondholders, sharing and explaining our analysis of the situation, and constantly negotiated terms with the company and their advisors and put them to votes in two bondholder meetings. In addition, we regularly exchanged views with another group of bondholders of the €300 million 2021/26 Metalcorp bond (WKN A3KRAP / ISIN DE000A3KRAP3).
What were the key operational challenges that you took into consideration as part of the bond restructuring?
The complexity of the restructuring negotiations resulted on the one hand from the prior event of default of Metalcorp, which had to be resolved, and on the other hand from the potential cross default regarding the €300 million 2021/26 bond. In addition, the issuer’s business model and the focus of its current activities in West Africa added to the complexity.
We therefore requested and reviewed confidential information in this regard, organised an on-site visit carried out by local partners and obtained and discussed a plausibility check of Metalcorp Group SA’s liquidity planning issued by an auditor.
Did any unforeseen obstacles arise? How did you deal with them?
Most unforeseen obstacles were related to the operational business in Africa. As the mining facilities for the Bauxite that Metalcorp was mining were in Guinea, Africa, political stability was an issue. After the military coup in Guinea in September 2022 that led to regime change, it was unclear if the new regime would honour existing contracts and licenses. In addition, a very important bauxite shipment was delayed several times, so we needed to conduct some on-site investigation. We hired a local law firm who organised a visit, helped us with legal documents and gave us detailed reports about the circumstances at the site.
From a procedural point of view, we had to contend with the fact that the company has its headquarters in Luxemburg and most of its management in Monaco, whereas the bond is issued under German law with most operational business done in Africa. This led to several challenges regarding communication, organisation and language barriers. We organised ourselves and made a restructuring plan as well as a timeline to deal with all issues in an orderly manner. Our experience with cross-border restructuring and a strong network in Europe and abroad helps us in these complex situations.
How did you work with Norton Rose Fulbright and other key firms to ensure the satisfaction of all parties?
Internally, it is important to work as a team and assign tasks to all team members. Besides project management and coordination, drafting of documents and market know-how was essential to represent the bondholders’ interests as best as possible.
Our experience with cross-border restructuring and a strong network in Europe and abroad helps us in these complex situations.
When it comes to working with other advisors, we believe key to success (considering the short period of only 6 weeks we had from default until the second bondholders meeting) was a swift and transparent coordination and negotiation between all parties. In this case, the process was always transparent and negotiation professional. It certainly helped that all lawyers and financial advisors involved were known for their expertise in this area and knew each other from prior restructuring cases.
As bondholders’ counsel, we spoke daily with the company and their advisors and addressed the most pressing matter in an always professional but pragmatic way that led to a win-win for everyone. Metalcorp was given an additional year through the extension of the bond and thus enough time to negotiate a refinancing and address operational issues.
Also, we ensured that a potential cross default was avoided so that a going concern was ensured. In order to strengthen the bondholders’ position regarding early and final repayments, we negotiated a repayment schedule and additional collateral for the bondholders. We also were elected as joint representative, meaning we represent the whole bond until full repayment, and so we constantly monitor and have the right to request reports from the company.
Why was DMR Legal a good fit for advising on the bond restructuring? What specialised skills and experiences did you and your colleagues bring to bear?
DMR Legal is a rather young firm, but all of our partners have many years of experience in big law firms, restructuring consultancies or management roles. In addition, we have a strong focus on finance and restructuring cases, combining expertise, experience and a hands-on-approach with in-depth market knowledge. Our lawyers usually know the advisors and market standards and can thus get straight to the points that matter. All lawyers have international experience and we regularly advice on cross-border financing and restructuring cases.
Besides legal expertise and market knowledge, our experience in working with or in financial advisory firms as well as management experience helps us to identify the client’s commercial interest and put it in the centre of our advice. This helps us to better understand the client and find a solution that helps them not only legally but also commercially.
Finally, communicational and project management skills are very important when there are many different stakeholders with different interests who need to be all taken into consideration when negotiating a solution.
Our lawyers usually know the advisors and market standards and can thus get straight to the points that matter.
What does the successful restructuring of the bond mean for Metalcorp’s investors?
First, it means that an otherwise almost certain insolvency of Metalcorp Group was avoided and the chances for a full recovery increased significantly.
The negotiations did not only preserve the rights of the bondholders, but they resulted in a significant improvement of the bondholders’ position through mandatory partial repayments, participation in collateral, new security mechanisms, an interest step-up of 1,5% and a participation fee of 0.5% of their respective bond volume for participating bondholders. The negotiated down payments and additional fees and interest rate mean a significant de-risk and better commercial terms all bondholders.
The approval rate of 99,77% for the restructuring proposal – and even 100% for DMR overseeing the further developments as a joint representative of the bondholders – shows that true value was generated for everyone. Capital market reaction on the price of the bonds confirmed it.
Do you believe that there will be more bond restructurings of this nature in the German market?
Yes, we believe that there will a lot more issuers that will have problems with refinancing their bonds or repayments. The capital market is very different today compared to five years ago, which is the usual term for a bond in the German market. As interest rates skyrocket, refinancing becomes more expensive, and – as investors are more conservative with their money – in many cases even impossible. We advised four major bond restructurings in Germany in 2022, including Metalcorp. For 2023 we believe this number will double, as we already see increasing demand for restructuring advice. Soon there will be more clients seeking advice than lawyers with time available to give it.
Can you name Industries or companies that are likely to default in the near future?
We of course monitor the market closely and have both a longlist and a shortlist of companies who we believe will have problems repaying their debt in the near future. Unfortunately, we cannot give you any names, but industries under pressure – at least in Germany – include the real estate industry, the automotive industry, energy-intensive producing industries and the healthcare industries. In general, all industries where companies face operational issues (energy prices, real estate market stagnation, electronic mobility) in addition to the turned financing market and high interest rates after years of cheap money are likely to have some repayment issues soon.
What would you recommend to a company or a creditor that faces liquidity or refinancing problems regarding their bonds?
A major problem in refinancing or restructuring cases is that the debtor usually acts to late on the issue. Debtors usually think they will find a solution soon and often start too late with initiating the talks with their creditors. That is usually not a result of bad faith, but managers and CFOs are deep in their daily work and few of them have restructuring experiences. Good advice by lawyers can help to identify options early and take the necessary steps before an event of default has occurred and everyone is limited to trying to fix it instead of actively shaping a solution.
Finally, communication and organisational skills are very important as you usually face many different creditors, but also need to talk and negotiate with banks, shareholders, employees, directors and advisors all at the same time. Especially in larger refinancing or restructuring cases, professional advisors on the legal, financial and communicational side help to streamline the process and create value in stressful situations.
Does DMR only advise on bond restructurings?
No. DMR Legal is a finance and restructuring firm and we advise on all sorts of financing instruments. That includes tradeable instruments such as bonds, German Schuldscheine or certificates, but also ’classic’ term loans, acquisition-/leveraged finance, venture debt and high-yield finance, real estate, project, asset-based finance, digital finance, crowdfunding and crypto finance. We advise creditors and debtors alike and can assist our clients in all kinds of critical situations such as insolvencies, out of court restructurings, self-administration, or restructurings under the new German StaRuG scheme. Our litigation department, specialising in finance and capital market disputes, assists in cases where a solution could not be found.