March 5, 2018 / 12:57 PM / a year ago

HSH Nordbank bondholders "concerned" by sales process

LONDON, March 5 (IFR) - Holders of €1bn principal of Tier 1 and upper Tier 2 notes in HSH Nordbank have said they are concerned by the proposed plan by its majority owners, the State of Schleswig-Holstein and City of Hamburg, to sell their stakes.

Last week the two entities, together with the bank, outlined a plan to sell their 94.9% stake for an estimated €1bn to a group of private equity investors led by Cerberus and JC Flowers.

Other funds involved are GoldenTree and Centaurus. Austrian bank Bawag is also contributing.

HSH Nordbank bonds sold off after the German Landesbank said its forthcoming privatisation would also include measures to “optimise” its liabilities.

The bondholder group said in a statement that “to date” they had been “strongly supportive of the privatisation process”.

But last Wednesday’s announcements about the planned sale left them “concerned about the nature of the sale process and its negative impact on the bank and its stakeholders, for the benefit of the buyers”.

The group, advised by PJT Partners and law firm Shearman & Sterling, have asked other investors, including retail holders, to contact them “to discuss their concerns collectively”.

Details about the liability “optimisation” are expected when the bank issues its year-end results on April 26.

The lender has already said it would not be able to make distributions on its hybrid instruments from the start of its 2020 financial year.

The transaction will see the bank’s non-performing loan portfolio, principally shipping-related, sold to a special purpose vehicle set up by Cerberus, JC Flowers, GoldenTree and Centaurus at a price below its current book value.

That will incur a charge expected to lead to a pre-tax loss of around €500m for the 2017 financial year to December 31.

At the beginning of the sales process the bondholder group offered to swap their notes for equity in the Landesbank. They held more than €700m (in principal value) of Tier 1 instruments, or roughly a third of the €2.1bn of such instruments in issue.

One instrument, a €500m perpetual FRN callable in 2018, was down 0.5 cent to 37 cents in the euro this morning. It had traded at 48 cents prior to the privatisation announcements.

Hamburg and Schleswig-Holstein took control of the bank after problems emerged in its shipping loan portfolio during the financial crisis. JC Flowers, which used to own the bank, already has 5% of its equity. (Reporting by Christopher Spink)

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