September 11, 2017 / 11:53 AM / 2 years ago

Novo Banco's debt restructuring in limbo

LONDON, Sept 11 (IFR) - Novo Banco’s liability management exercise is hanging in the balance after investors holding just nine of the 36 series of targeted notes accepted the offer made by the state-backed Portuguese bank.

Portuguese authorities have said that the deal is a necessary condition of the bank’s sale to US investor Lone Star.

The nine notes represent €2.34bn, or 28%, of the senior debt targeted, by face value. In order for the whole offer to succeed investors representing 75% of the €8.37bn must accept the offer, which if passed would generate at least €500m of capital.

Investors holding 15 series of the targeted bonds rejected the offer in meetings with a sufficient quorum. These accounted for €3.28bn of the total debt, or 39.2%. However, those voting for the proposals may be included in the overall vote for the whole scheme. No details were released of each series’ votes.

Meetings involving investors holding the other 12 series of bonds did not generate enough votes for results to be counted. These meetings have been adjourned until September 29. The total amount of senior debt targeted through these bonds is €2.68bn, or 32% of the total.

At the adjourned meetings only a third of bondholders in each series need to vote for a quorum to be reached but measures still have to be backed by at least 75% of voters. In other words investors holding at least 25% of the bonds by value have to back the measures.

After the offer was outlined at the end of July, a group of bondholders said they held enough notes to block the whole exercise. They called for talks with the bank, with a view to changing the terms of the deal and possibly joining Lone Star and receiving equity in the bank.

BNP Paribas credit analysts said in a note that the adjourned meetings mostly were for shorter dated instruments “which could be incentivised to participate” by being given fixed-term deposits with generous interest rates.

However, they said that the rejection levels would make it hard for the overall exercise to be approved.

“Although the participation in the first meetings is higher than expected, the target of €6.3bn participation still appears challenging in our view given that the measures have been rejected on 15 bonds,” BNPP analysts said.

They estimated that after the next round of meetings, participation levels could rise to €5.5bn, or around two-thirds of the total. That would still be short of the 75%, or €6.276bn required.

That could lead to negotiations between the bondholder group, advised by restructuring specialist PJT Partners, and Novo Banco, since the overall vote can be waived if all sides agree. The group includes Pimco and other institutions.

The offer is being managed by Deutsche Bank, JP Morgan and Mediobanca. (Reporting by Christopher Spink)

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