Group financing update
Jun 08, 2017
On June 8 2017, Agrokor d.d. (the "Company" and, together with its subsidiaries, the "Group", "we" or "our”) announced it reached an agreement1 with members of the ad-hoc group of holders of 2019 and 2020 senior notes (the “Ad Hoc Committee”) and a local bank2, on a new financing arrangement (the "Financing Arrangement").
Over the recent weeks, the Company has urgently sought new financing to ensure long-term stability of the Group’s operations, preserve value for stakeholders and minimise systemic risks for Croatia. During this process, the Company approached a significant number of parties and fully explored a number of competing proposals.
Following completion of this process, the Company concluded that the Financing Arrangement is the only option for existing creditors of the Company which can be implemented within the time constraints of the Company’s liquidity position. It provides timely funding to the Group while at the same time allowing creditors the option to participate in the new money financing. The Financing Arrangement ensures the viability of the Group.
The Financing Arrangement includes a refinancing provision whereby for €1.0 of new financing provided, €1.0 of pre-petition claims shall be refinanced. This feature provides appropriate protection to those participating to the Financing Arrangement while ensuring that the Company is fully funded as a going-concern through the critical summer season, thereby maximising recovery prospects for all stakeholders.
The proceeds of the Financing Arrangement will be used towards the re-building of necessary inventory, funding seasonal working capital requirements, restoring minimum cash balances and normalizing suppliers’ trade claims. The Financing Arrangement is intended to provide a permanent liquidity solution for Agrokor, which will benefit its suppliers in addition to the Company directly. Furthermore, upon the successful completion of the Law of Extraordinary Administration, the Company will have the option to extend the facility for two years to minimize refinancing risk and maintain low cost funding.
Key terms of the Financing Arrangement are as follows:
- Total new financing of up to €480m structured as a term loan (the “New Loan”), allocation as below (participation will be allocated pro rata based on all outstanding debt in the class):
- €170m for existing pre-petition international bank lenders
- €160m split: (i) €80m for holders of the existing DIP; and (ii) €80m for existing local Croatian banks including lenders of the existing DIP
- €150m for members of the Ad Hoc Committee
- Unallocated portions of the €480m will be backstopped by funds managed or advised by Knighthead Capital Management, LLC and Zagrebačka Banka for the domestic market (under condition it receives approval from its bank’s committee)
- An accordion facility of €50m available to trade creditors under the same terms
- Up to €150m of the New Loan will be available to pay pre-petition supplier claims
- 1:1 refinancing of funding lenders’ pre-petition debt into a participation in the New Loan (based on drawn amounts on the New Loan). This will increase the size of the New Loan to €960 million (if fully drawn) plus the supplier accordion
- Borrower: the Company, with the ability to on-lend within the Group to extend intercompany debt which ranks super senior under the Law of Extraordinary Administration
- Guarantors: Any materials subsidiaries of the Company, including but not limited to Ledo d.d., Jamnica d.d. and Konzum d.d.
- Interest: Euribor + 4% p.a. PIK accruing monthly or Euribor + 3.8% cash payable annually at the quarterly election of each individual lender, Euribor floor at 0%
- Maturity: The earlier of (i) 15 months from commencement of the Law of Extraordinary Administration process (April 10 2017), (ii) court adoption of a settlement agreement under the Law of Extraordinary Administration, or (iii) commencement of a bankruptcy. Upon the successful completion of the Law of Extraordinary Administration with a settlement agreement approved by Lenders, the Company will have the option to extend the facility for two years at a rate of Euribor + 6%
- No penalties for prepayment
- Ranking: Super senior status granted under the Law of Extraordinary Administration for Borrowers and Guarantors representing approximately 85% of Group revenues
- Security: (i) material unencumbered tangible and intangible assets of the Company and the guarantors, (ii) intercompany loans created by the on-lending of the new financing, and (iii) in addition c. €390m of unencumbered collateral including but not limited to real estate, stores and factories, and (iv) any other collateral3 agreed to by lenders of the New Loan and the Company each to be provided as a condition subsequent to funding
- Mandatory repayment from sales: Obligors to apply 90% of net proceeds from asset sales over €5m to repay the New Loan (at par plus accrued). Obligors can retain sale proceeds for working capital purposes where approved by Lenders
- Most favored nation: The lenders of the New Loan to benefit pro rata in any security, guarantee or similar arrangement offered to any other financial indebtedness of any member of the Group other than in a full refinancing resulting in prepayment of the New Loan
- Subject to various positive, negative and information undertakings, and milestones
In the context of these discussions, the Group has shared the financial information set forth below with members of the Ad Hoc Committee and other potential lenders. Such information is preliminary and unaudited and subject to change as the Company completes its ordinary accounts closing processes, and previously announced review of its historical financial statements.
- The Group requires new money funding of €400m to cover working capital requirements and general corporate purposes;
- Report compiled by an external advisor detailing the Group’s indebtedness as of 31 March 2017, as summarised in the Company's announcement on Irish Stock Exchange published on 11 May 2017;
- 13-week cash flow report covering the Group’s core 19 subsidiaries (expected to include >90% of the Group’s cash flows) for the week ending 2 June 2017, indicating:
- Latest revenue performance for the following operating entities:
- Konzum: revenues down 11% YTD May and assumed to recover to c. -10% during the season
- Tisak: revenues down 20% YTD May and assumed to recover to a level of c. -5 to -10% during the season
- Velpro: revenues down 23% YTD May and anticipated to recover to c. -20% during the season
- Roto: YTD May revenues up 9%
- Jamnica: YTD May revenues up 1%, expected to further increase to 6% for the full year
- Ledo: YTD May revenues down 15%, ice-cream up 3% YTD May
- PIK Vrbovec: YTD May revenues down 13%
- Zvijezda: YTD May revenues down 13%;
4. List of unencumbered assets of the Group (including real estate, stores and factories) with book value of c. €390m (c. HRK 2,880m)4 and publicly available information on a selected group entities potentially available as collateral for the New Loan
1 Please note that the agreement has not yet been signed
2 Subject to final credit committee approval
3 Including but not limited to hard assets and shares
4 HRK / EUR 7.44