The Cost of Restructuring: Consent Fees, Advisor Fees and Backstop Fees Data for Schemes and Part 26A Collated Since 2020

Key Takeaways

Schemes
 

• Lockup Fees and Consent Fees often feature and are rarely disputed. They range between 0.25% and 3%, however the majority are charged at below 1% of debt locked up.
• Fees of Advisors to relevant creditors and the debtor almost always are paid by the debtor and the total amount paid is rarely disclosed.
• Additional AHG Working Fees also feature and these vary in range from 0.05% up to 1.75%, where disclosed. These fees are sometimes expressed as a fixed percentage of debt or a fixed or success fee.
• Backstop Fees are becoming more prevalent and they seem to vary from 0.25% to 5%.

Part 26A
 

• Generally, Part 26A are much less likely to include fees than Schemes, however as a general trend, fees are becoming more prevalent.
• Lockup Fees and Consent Fees are becoming more common. They began to appear in early 2023 and are of a similar quantum to those featuring in Schemes.
• Ticking Fees and Exit Fees reaching highs of 5% and 1%, respectively, are novel types of fees that have featured with respect to new money in Part 26A.
• AHG Working Fees now feature in Part 26A and have, in certain cases (see McDermott), become notably high at $150 million.

 

Debtor Name	Date of Sanction	Lockup/Consent Fee	Working Fee	Backstop/New Money Fees	Other Fees or Incentives
Swissport	June 24, 2020		AHG fees not disclosed	Underwriting fee not disclosed
Matalan	July 27, 2020			0.5% Underwriting fee for single creditor	0.5% 1L consent solicitation (£1.74M), 0.5% 2L deferral fee
Flint Group	July 30, 2020	0.5% (early bird) or 0.25% consent fee
Hema BV	Aug. 24, 2020	1% lockup fee
Codere Finance	Oct. 6, 2020	1% (early bird) or 0.5% consent fee	1% work fee (€7.6M)	2.5% backstop fee	3% discount on interim notes, 2% enhanced coupon on interim notes, €6.75M advisor fees
KCA Deutag	Nov. 5, 2020	0.15% lockup fee	1.75% AHG work fee, 1.75% RCF work fee
Swissport (Second Scheme)	Dec. 10, 2020	0.25% consent fee		0.25% backstop fee
Petra Diamonds	Jan. 12, 2021	1% lockup fee (paid in additional entitlements)		5% backstop fee	1% restricted period fee, reasonable costs of advisors
PGS ASA	Feb. 2, 2021	0.25% (early bird) consent fee	0.39%, $1.2M AHG work fee		0.4% amendment fee, 1% additional fee, costs of advisors
OHL	Feb. 5, 2021	2% lockup fee		Additional shares for backstop providers
Lowen Play	May 5, 2022	0.25% consent fee		4% backstop fee
Haya Real Estate (First Scheme)	Aug. 6, 2022	0.5% consent fee
Nostrum Oil & Gas	Aug. 26, 2022	0.5% lockup fee
China Fortune Land Development	Jan. 24, 2023	Upfront cash prepayment fee of 1%, deferred cash prepayment fee of 1.8%	AHG advisor's fees representing around 0.05% of total value of restructuring consideration
Veon Holdings BV	Jan. 30, 2023	2% amendment fee			A put option requiring Scheme Company to repurchase 2023 notes at a 2% premium if exercised
Vroon BV	May 16, 2023		€2,200 per MoCom member and an additional €6,550 for the chair of the MoCom
Hilding Anders AB	July 12, 2023	Lockup early bird fee - 0.25%	The Scheme Companies have agreed to pay certain professional fees incurred by the members of the AHG	Upfront fee - 4%. Backstop fee - 4%
Haya Real Estate (Second Scheme)	Aug. 29, 2023	Early bird fee - 1%, consent fee - 0.5%	Risk fee - €450,000 to each of two AHG members
Praesidiad	Nov. 23, 2023	Consent fee - 3%		Backstop fee - 4%, Exit fee - 4%
PlusServer	Jan. 21, 2024		The Scheme Company has agreed to pay certain professional fees incurred by the members of the Ad Hoc Committee	Backstop fee - 3%	Original issue discount - 4% with respect to participation in the new money
Tele Columbus AG	Feb. 28, 2024	Early consent fee - 0.125%; late consent fee - 0.125%
Arvos Group	March 18, 2024	Early bird fee - 0.15%, lockup fee - 0.10%
SGS Group	April 11, 2024	Amendment fee - £2.97M	Transaction fee payable to AlixPartners for £1.5M agreed prior to Scheme

Part 26A Fees: January 2020 - September 2024

We have only included the Part 26A, which included fees (in addition to usual advisor fees) and those fees were explained in court documents. We note that out of the 20 or so Part 26A we have reported on, only six have featured fees.
Some further judicial commentary on the types of fees incurred and arguments made by parties can be found below.

Lockup/Consent Fees

In ED&F Man’s convening skeleton argument, the approved 0.25% early bird consent fee was described as being “very common” and “set at a very modest level,” plainly not fracturing any of the plan company’s proposed classes. The skeleton argument further set out that “where a consent fee is made available to all creditors in advance of the scheme meeting, it cannot fracture the class. If each creditor had a right to obtain the fee, then there is no difference in rights that is capable of fracturing the class.”

A further argument made by the plan company is that the modest level of the consent fee would be unlikely to exert a material influence on the relevant creditor’s voting decisions. The judge appeared to be satisfied that the inclusion of the fee did not fracture any proposed creditor class.

Working Fees

“Recent case analysis is a little slippery in this area,” Trower J said in the KCA Deutag scheme proceedings, “it could result in rising [working] fees as each case refers to the previous one.” The KCA scheme was subject to an unsuccessful challenge by one scheme creditor who described the work of the AHG as “purported” and the fees as “outrageous.”

KCA Deutag negotiated working fees of $18.6 million for the AHG, an amount equal to 1.75% of the face value of the AHG’s exposure. The RCF lender party received $4.8 million in work fees, also equal to 1.75% of the participating group’s exposure.

Trower J was satisfied that the fees paid prior to the scheme being launched related to work on the standstill agreement and were not contractually or in fact connected with the scheme.

In Noble Group’s scheme, Justice Snowden was particularly skeptical of the work fees paid to Noble’s AHG in 2018. The AHG received a working fee equal to 2% of its principal holdings, subject to a cap of $40 million. Payments of about $28.5 million and $36 million were made to the RCF group and AHG, respectively

Snowden J said the fees “seemed on [their] face to have been computed simply on the basis of holdings of debt rather than by reference to any identifiable or measurable work actually done or to be done.”

Counsel for the creditors argued that, as financial institutions, members of the AHG do not typically record their time in a way similar to counsel. Representatives for the company added that the fees were in line with market practice.

Snowden J said he was: “not wholly convinced by this evidence. However, at this stage and without further investigation or disclosure, I cannot reject it or conclude that the [fees] are not what they are represented to be.”

Codere’s scheme faced a significant challenge from one scheme creditor, Kyma Capital, but was ultimately successful. Kyma took the view that Codere’s AHG should vote in its own class, separate from non-AHG noteholders. Kyma’s reasoning was that the AHG had the benefit of special rights to provide lucrative interim funding and had received working fees, which other noteholders had not. Justice Falk however agreed with Codere that the rights afforded to the AHG were not sufficient to fracture the proposed single class of scheme creditors, but added that the issue “far from straightforward.”

The AHG of Codere lenders received work fees of €7.6 million, or 1% of the principal amount of the existing notes. Again, Falk J noted that the working fee “[did] not obviously relate to any level of ‘work’ done by individual members of the ad hoc group.”

Falk J considered the “cumulative benefit” to the AHG from work fees and other associated fees, an approach that might offer guidance for judges in future.

Justice Michael Green explained in McDermott’s Part 26A that he was “troubled” and “horrified” to discover that McDermott has spent around $150 million on professional fees in negotiating with its secured creditors and advancing the restructuring plans. “That is an enormous sum of money, even taking account of the fact that it includes the costs of the supporting creditors as well.” Most of this was funded using $250 million of new money provided by the secured creditors.

There seems to be “something wrong with the restructuring industry, particularly in the U.S., where the costs appear to be out of control,” the judge wrote. He expressed concern that costs of this magnitude “could be a barrier to the sort of restructurings that Part 26A was meant to encourage.”

The judge’s comments on fees must of course be balanced with the magnitude of the restructuring. The McDermott group comprised nearly 300 entities across the globe. Further, there were three separate jurisdictions involved, the U.S., the U.K. and the Netherlands, as well as two separate restructuring processes, in England and the Netherlands.

Backstop/Underwriting Fees

In Lowen Play’s scheme skeleton argument, the group said “there is nothing unfair about the Backstop Fee. The Backstop Fee is likely to be characterized not as a benefit or a bounty, but as a payment for new services provided on commercial terms.” Further, the 4% backstop fee was characterized as being just 0.3% of the total scheme consideration and therefore not material.