The opportunistic funds that control most of the Celsa metallurgical group’s debt want to enter the capital and control 49% of its shares through a transformation of participating debt into shares. It is the main point of the counterproposal that they have sent to the company this Sunday, after two weeks ago the company owned by the Rubiralta family transferred theirs to them: the requirement that the funds execute 50% haircuts on the 2,400 million of debt that they were buying from banks during 2017 and 2018 with great discounts. The positions are far apart and the calendar is pressing. If there is no agreement, the Spanish Society of Industrial Participations (SEPI), the industrial arm of the State, will not approve the injection of 550 million euros in the form of credits, an aid that has a deadline of June 30. From there, the European Commission will close the window on business aid to mitigate the impact of the coronavirus.
The proposal has been sent this Sunday to the company, according to sources close to the funds. In this, the terms of the SEPI aid are defended, but the funds involved, which control 90% of the 2,400 million euros of debt that is not in the hands of the bank, demand a substantial change with respect to the will of the Rubiralta. They would replace the 1,200 million euros of the subordinated debt with 700 million euros of subordinated instrument (which would remain off the balance sheet and would not consume cash) and the rest, 500 million euros, would be converted into a package equivalent to 49% of the ordinary shares. The owner family would maintain 51% of the capital and control of the company, which with this proposal is valued at 1,000 million euros.
With this claim it is clear that Celsa and funds such as Attestor, Golden Tree, Sculptor, CVC or Cross Ocean are at odds with the vision they have to get out of a complex situation. Sources familiar with the discussions warn that SEPI has asked for speed to reach an agreement because there are still many procedures to be done to close the 550 million euros and the loan should be approved by the Council of Ministers on June 28 at the latest. The funds requested more time last week to be able to negotiate and have even asked to be able to be in the talks that Celsa is holding directly with SEPI, which has called for a deleveraging process to carry out the operation.
The funds totally disregard Celsa’s request, which saw the logic of a waiver of 1,100 of the 2,400 million euros of debt by the creditors, considering that these packages were acquired with discounts of between 20% and 25% for the senior tranche (currently 800 million euros) and up to 80% for 1,400 million of the convertible part. The Rubiralta family considers that the request for the total debt on the books could be considered “usury” and for this reason they filed a lawsuit before the pandemic.
The proposal represents the opposite, since the creditors want to enforce 100% of the convertible debt of the Spanish steel giant. What they propose is simply to change its format and convert a part into a subordinated instrument, which would not be considered debt, and the rest into social capital. The funds argue that if their proposal is accepted, the deal can be closed very quickly. On the contrary, the same sources warn that the non-payment of the convertible debt in which Celsa has fallen could end with the assumption of 100% of the group’s shares.
The Rubiraltas, convinced that the group has made all the necessary investments to begin a new stage marked by the recycling of materials and electrification, understand that their policy of reinvestment and non-distribution of dividends is the best sign of their commitment and Sacrifice for the company. For this reason, they understood, they could demand that the funds reduce the debt to levels close to what they paid for it and, therefore, they undertook to inject 50 million euros to capitalize the company.
He knows in depth all the sides of the coin.
SEPI’s entry into the game changes everything. The body dependent on the Ministry of Industry is now playing the largest of the aid it has given in recent months to companies that have suffered a bite in their income due to the economic crisis caused by the pandemic. It will give Celsa a total of 550 million euros in two ways: a loan convertible into shares of 280.5 million euros to be paid in seven years and to which Brussels must approve, and another ordinary loan of 275 million. But SEPI will ensure during those seven years of convertible credit veto power over company decisions to prevent assets from being sold that put the viability of the group at risk.
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