Transaction Highlights: Frigoglass Restructuring

Shearman & Sterling advised the Frigoglass Group on its successful capital restructuring (the "Restructuring"), which included the use of an English scheme of arrangement to restructure New York law governed high yield notes.

BACKGROUND

The parent company, Frigoglass S.A.I.C. (the "Parent") is incorporated in Greece and listed on the Athens Stock Exchange; it has subsidiaries in various EU countries and elsewhere in the world, but not in the UK. The Frigoglass Group manufactures packaging products and retail coolers for beverages, and is a leading supplier of high-quality glass bottles and related products to selected markets in Africa, Asia and Oceania.

In 2013 the Frigoglass Group issued €250 million high yield notes due 2018 (the "Notes") through a Dutch finance subsidiary, Frigoglass Finance B.V. (the "Issuer"). The Notes were issued under a New York law governed indenture. At the same time, the Issuer incurred revolving credit facilities of up to €50 million with two international banks under English law governed facility agreements. These facilities were in addition to other existing credit facilities that were available to the Parent, the Issuer, the Issuer's direct holding company, and certain other operating subsidiaries of the Frigoglass Group.

EXPLORING ALTERNATIVES

The Frigoglass Group's operations were materially affected by adverse macro-economic conditions, which resulted in covenant breaches under its revolving credit facilities. In addition, the Frigoglass Group faced looming maturities on its bank and bond debt in 2017 and 2018, and had to examine its options in terms of restructuring and deleveraging its capital structure in the light of the upcoming maturities.

A reduction in debt and an extension of maturity would have required the approval of at least 90% in principal amount of the Notes, and the approval of each lender under its bilateral bank facilities. It was considered impracticable to achieve these consent levels on the Notes on a consensual basis, given the Notes were widely held (including, it was believed, by retail investors in Greece).

Consideration was given to legal processes which could be used to reduce the consent thresholds for the required restructuring, but at the same time bind any dissenting minorities. While we considered alternative processes in the relevant jurisdictions, being The Netherlands, Greece, the United States and England, ultimately it was decided that an English scheme of arrangement would be the most practical means of achieving a compromise of the Notes, as it had the advantage of:

reducing the required consent threshold to 75% by value (and 50% by number) of those voting; requiring only the principal debtor and not the guarantors to be a party to the scheme itself, but with the ability to compromise the related guarantee claims, and thus preserving value in the guarantors and the Frigoglass Group; and significant precedent and recent case law for similar restructurings involving foreign principal debtors and guarantors. In addition, while a sufficient connection in England was lacking, there were several ways in which such a connection could be created (as further described below).

THE RESTRUCTURING

The Restructuring comprised a number of different elements, namely:

New Funding:

To fund working capital, restructuring costs and improve liquidity, the Frigoglass Group would receive:

new funding of €40 million, to be structured as first lien secured debt. The holders of the Notes and certain core banks providing credit facilities to the Frigoglass Group (together the "Participating Creditors") would be given the right (pro rata to their exposure) to provide these new monies; and an additional €30 million of new monies from its principal shareholder by way of an equity contribution (as described in the paragraph titled principal shareholder support below). Roll-Up of Existing Debt (the "Roll-Up"):

For each €1,000 of new monies provided by a Participating Creditor, €2,000 of their existing debt exposure would be exchanged for an equal principal amount of new first lien secured debt.

Equitisation:

The remainder of the debt exposure of the Participating Creditors was to be treated as follows:

for holders of the Notes: (A) 50% of the remainder was to be exchanged for second lien secured debt; and (B) the balance, after applying a discount, was to be exchanged for shares in the Parent (and, if existing shareholders of the Parent (other than its principal shareholder) subscribed cash for shares in the Parent pursuant to the rights issue...