Intralot Restructuring; Novel Redemption Facility Structure
Intralot’s recent restructuring of its two tranches of equally ranking unsecured notes due 2021 and 2024 used a consensual out-of-court implementation method to bypass the 90% amendment threshold in its 2021 notes’ indenture. The Intralot restructuring, which completed in early August, highlights the weakness in bargaining power of temporally subordinated noteholders, when an earlier maturing but pari ranking note negotiates a restructuring with an issuer.
Although the company announced that it was open to negotiation and was speaking to a group of the temporally subordinated 2024 noteholders, sources Reorg spoke to in the 2024 noteholder group claimed that the company did not offer them any attractive amended terms and that the 2024 group was not properly involved in any deal formation. The 2021 noteholders appeared to drive the Intralot restructuring process.
Unlike contractual, collateral, or structural subordination, where protections can be put in place to mitigate erosion of a subordinated debtor’s position, a temporally subordinated creditor can do little to better their position, without a looming maturity date or missed interest payment, or other trigger event.
Further, the group used a novel “redemption facility” structure to reach the 90% consent threshold required for amendments to its 2021 notes. The process eroded the consent threshold in the notes indenture by effectively repaying pro rata some of the outstanding 2021 notes and then issuing brand new notes to members of a 2021 ad hoc group.
The transaction resulted in the 2021 ad hoc group holding over 90% of the 2021 notes and being able implement a 2021 notes exchange. Existing 2021 noteholders were granted new secured notes in exchange for their 2021 notes.
To read our extensive analysis and intelligence on the Intralot restructuring situation as well as our EMEA Core Credit team’s analysis of hundreds of other high-yield and distressed debt situations request a trial here: https://reorg.com/trial