27-01-2012: Q-Cells SE: Company announced debt restructuring - Deminor proposes to create a Creditor's Committee

 

A. Summary of facts

1. On 24 January 2012, Q-Cells announced that it plans to implement financial restructuring measures. This restructuring would take place in two steps: (A) partial repayment of the outstanding amount of the 2012 Convertible Debt (current outstanding amount: € 201.7 million, Source: company's website), followed by (B) restructuring of the 2014 Convertible Debt and 2015 Convertible Debt via a debt-to-equity swap.

2. With respect to the 2012 Convertible Debt, Q-Cells has already taken measures. A bondholders' meeting had been convened in October 2011 in order to appoint a joint representative with the power to extend the maturity of the convertible bonds for a certain period. This decision would have been binding upon all bondholders. However, a German Court recently ruled that this appointment of a joint representative was not legally effective because the new German Bond Act of 2009 did not apply to the 2012 Convertible Debt. Q-Cells announced that it would appeal against the court decision. In the meantime, Q-Cells will try to reach agreements with the holders of the 2012 Convertible Debt through a public offer which should be made "shortly".

3. The solution proposed by Q-Cells for the 2012 Convertible Debt would apparently consist in a partial repayment in several tranches. The 2012 Convertible Debt matures on 28 February 2012 (5-year maturity). It pays a coupon of 1.375 % per annum. The conversion price is €56.62 while the Q-Cells share currently trades at €0.39 (25 January 2012, Source: Frankfurt Stock Exchange). The 2012 Convertible Debt currently trades at 35.1% (25 January 2012, Source: Frankfurt Stock Exchange).

4. As far as the two other outstanding convertible debts are concerned (2014 Convertible Debt and 2015 Convertible Debt, both also with a 5-year maturity), the company would envisage a debt-to-equity swap. The 2014 Convertible Debt has an outstanding amount of €250 million and matures on 26 May 2014. It pays a coupon of 5.75% per annum. The conversion price is €19.45. The 2014 Convertible Debt currently trades at 13.5% (25 January 2012, Source: Frankfurt Stock Exchange). The 2015 Convertible Debt has an outstanding amount of €128.7 million and matures on 21 October 2015. It pays a coupon of 6.75% per annum. The conversion price is €4.38. The 2015 Convertible Debt currently trades at €0.71 (or 16.2% of its nominal value, 25 January 2012, Source: Frankfurt Stock Exchange).

5. As of 30 September 2011, Q-Cells had €230 million in cash and cash equivalents. The company's net debt amounted to €515.3 million. The convertible debts represent the majority of the financial liabilities as reported on the balance sheet (slightly more than 70%). For the first nine months of 2011, Q-Cells reported a negative free cash flow of €200 million. In its latest announcement of 24 January 2012, Q-Cells announced that, according to its business plan, it expected a positive EBITDA as from 2013 and a positive EBIT as from 2014. The underlying assumptions for this business plan have not been detailed. The company only indicated that "a fundamental precondition for generating profits based on the mid-term business plan, is a timely implementation of the financial restructuring of all three outstanding convertible bonds."

B. Analysis and proposed action

6. Q-Cells is apparently trying to restructure its debt and has decided to do it in two steps. Because of time constraints, the company first wants to find a solution for the 2012 Convertible Debt. Q-Cells would envisage a partial repayment in several tranches (to avoid a sudden "cash out"). The outcome of the negotiations with holders of this debt will necessarily have an impact on the value of Q-Cells and on the debt-to-equity swap solutions that will be proposed to the holders of the two other remaining convertible debts.

7. As discussions with holders of the 2012 Convertible Debt seem to have already started and may already be at an advanced stage, the focus is now on the holders of the 2014 Convertible Debt and 2015 Convertible Debt. A recent legislation (Gesetz über Schuldverschreibungen aus Gesamtemissionen enacted in 2009, hereafter the "2009 Bond Act") amended provisions of German law related to bond issues and bondholders' rights. The 2009 Bond Act came into force on 5 August 2009 and applies to bonds issued on or after 5 August 2009. It may also apply to bonds issued before that date provided that the holders of those bonds decide by a 75% majority to have their bond issue regulated by the new provisions of the 2009 Bond Act. The 2009 Bond Act makes it easier to amend the terms and conditions of a bond issue (so-called "collective action clauses"). Such collective action clauses may apply to proposal to convert or exchange notes into shares. Material amendments to the terms and conditions are subject to a qualified majority of 75% of the votes (+ quorum). Decisions of a bondholders' meeting which are taken in accordance with those new provisions are binding upon all bondholders.

8. Q-Cells tried to apply the 2009 Bond Act to the 2012 Convertible Debt (which had been issued before the 2009 Bond Act came into force) but this was rejected by the Frankfurt Regional Court. Q-Cells announced that it would appeal against the decision. In the meantime, the question is whether the 2009 Bond Act applies to the two other convertible debts. The 2014 Convertible Debt was issued on 26 May 2009, i.e. before the entry into force of the 2009 Bond Act, while the 2015 Convertible Debt was issued after 5 August 2009 and would therefore be subject to the 2009 Bond Act. Q-Cells may however try to rely on collective action clauses for both convertible debt issues in order to propose amendments to the terms and conditions of those bond issues.

9. Holders of the 2014 Convertible Debt and 2015 Convertible Debt may expect (attempts to use) collective actions in order to restructure those convertible debts. This will necessarily have an impact on the value of their investment. Collective actions and proposals to amend the terms and conditions of a bond issue are often preceded by discussions and negotiations between the bondholders and the company. In those circumstances, the bondholders are incentivized to organize themselves as a group in order to maximize their bargaining position. By acting as a group, bondholders can improve the defence of their interests and have a greater influence on the outcome of negotiations and proposal(s) that will eventually be submitted to all bondholders.

10. Deminor invites holders of 2014 Convertible Debt and 2015 Convertible Debt to express their interest in joining a creditors' committee. Although the timing of the proposed restructuring has not been decided yet by Q-Cells, the creation and organisation of such a creditor committee may often take time. This is why we believe that it is better to anticipate as much as possible any action taken by the company. Depending on the reactions received, Deminor will propose an agreement to formally join a creditors' committee as well as the rules of organization of such a committee.

C. Contact details

For further information about this case, please do not hesitate to contact:

 

Charles Demoulin

Partner                        

+32 2 674 71 10

charles.demoulin@deminor.com

 

Bruno Wagner

Consultant

+32 2 674 71 10

bruno.wagner@deminor.com

Jean-Philippe Timmermans

Head of Back Office

+32 2 674 71 10

jean-philippe.timmermans@deminor.com

 

Notice

This document is intended only for use by the recipient.
The recipient acknowledges that all research and analysis in this document are the property of Deminor International S.C.R.L. (hereafter "Deminor") and agrees to limit the use of all research and analysis received from Deminor within his own company or organisation.
No rights whatsoever are given for passing-on, transmitting, re-transmitting or reselling the information provided.
The recipient shall, at all times, endeavour to keep all such information strictly confidential and to consider it as privileged attorney/client communication.

 

Disclaimer

All information contained in this document is based on publicly available data only.
Opinions, advice and recommendations constitute Deminor's own judgement on the date of analysis and are subject to change without notice. The information contained in this document may not be considered as an exhaustive legal advice nor as a legal opinion. While due care is taken by Deminor in compiling the data and in forming its own opinions, advice and recommendations, it gives no warranty, express or implied, concerning the data, opinions, advises and recommendations, nor does Deminor assume any liability with respect to the consequences of the use thereof. In particular, the research and analysis provided are not intended to constitute an offer, solicitation or advice to buy or sell securities.

 

Copyright

Deminor International S.C.R.L., Av. E. Van Nieuwenhuyse 6 b.8 - B-1160 Brussels
RC/HR Brussels 581 367 - VAT BE 452 511 928
Website: http://www.deminor.com