Metalcorp is a group of metals and minerals that owns production and mining operations in Europe and Africa. Its primary business areas are aluminium, metals, and concentrates. In 2021, its bulk goods segment and ferrous metals section will also contribute around EUR254.8 millions in sales. The company’s first half 2022 sales revenue rose 68% year-on-year to EUR511.1million.
Metalcorp declared in October 2022 that it couldn’t afford to repay the bond, originally issued in 2017 for a five-year period. This bond was extended for one year after the restructuring went well. The additional year will bring 8.5% interest to investors, compared with 7% for the original term. There are a number of security mechanisms, termination rights, and mandatory partial repayments at March 2023 and May 2023.
At a second creditors meeting held in November 2022, the overwhelming majority of creditors approved the new arrangement. The majority of creditors are private investors. They had pooled their assets with the assistance of the Protection Association of Capital Investors, which presented the pertinent motions to the meeting. There was a one month objection period, which expired without any objections. Metalcorp also has a five-year bond (2021/26) that is worth EUR300 million. The bondholders are advised Kirkland & Ellis.
DMR Legal represented the Metalcorp bondholders with a team that included partners Dr Tobias Moser and Dr Thomas Ressmann, as well associate Fabian Wirths.
Dr Tobias Moser, DMR Legal
Could you please tell us more about your role and that of your team during the restructuring?
Our team represented a group of large institutional investors, mainly asset managers and pension funds. Our team worked closely with SdK, a German investor organization that organized many private investors.
We organized the bondholders, and approached Metalcorp to negotiate the restructuring process. Two investor conferences were held for bondholders. We shared and explained our analysis and negotiated terms with the company’s advisors. They also put their views to vote in two bondholder meetings. We also regularly exchanged views and information with another group bondholders for the EUR300 million Metalcorp bond (WKN / ISIN de000A3KRAP3).
What were the most pressing operational issues that you considered when restructuring the bonds?
The restructuring negotiations were complicated by the Metalcorp default, which was resolved. There was also the possibility of a cross default on the EUR300 million 2021/26 bond. The complexity was further complicated by the issuer’s business model, and its current focus on West Africa.
Therefore, we requested and reviewed confidential data in this regard. We also organised an on-site tour by local partners. Finally, an auditor issued a Plausibility Check of Metalcorp Group SA’s Liquidity Planning.
What were your experiences with unexpected obstacles? What were your strategies for dealing with them?
The most significant unforeseen hurdles were those related to Africa’s operational business. Political stability was a problem because the Bauxite mining facilities that Metalcorp was using were located in Guinea, Africa. It was not clear if the new regime would honor existing licenses and contracts after the military coup in Guinea, September 2022. We also had to investigate the site after a critical shipment of bauxite was delayed multiple times. A local law firm was hired to organize a visit and provide detailed reports on the site’s circumstances.
We had to deal with the fact that the company’s headquarters are in Luxemburg, and its management is based in Monaco. The bond was issued under German law, with most operations being done in Africa. This created many challenges in communication, organisation and language. We organized ourselves and created a plan for restructuring as well as a timetable to address all issues in a systematic manner. These situations are complicated because of our experience in cross-border restructuring as well as our strong network in Europe.
How did you collaborate with Norton Rose Fulbright, other key firms, to ensure that all parties were satisfied?
It is important to work together internally and to assign tasks to everyone. To represent bondholders’ best interests, it was important to coordinate projects and draft documents.
These complex situations are made easier by our experience in cross-border restructuring, and our strong network in Europe.
We believe that working with other advisors is key to success. This is due to the fact that there was only six weeks between default and the second bondholders meeting. It was important to have a quick and transparent coordination of all negotiations and coordination. The process was transparent and professional in this instance. It was a great help that all the financial advisors and lawyers involved in this case were well-known for their expertise and had worked together on prior restructuring cases.
We were bondholders’ counsel and spoke with the company and their advisors daily. This allowed us to address the most pressing issues in a professional, but pragmatic manner that resulted in a win-win situation for all. Metalcorp was granted an extension of its bond for an additional year, which gave it enough time to address operational problems and negotiate a refinance.
We also made sure that there was no cross default to ensure that the company remained viable. We negotiated a repayment plan and additional collateral to help bondholders strengthen their position on final and early repayments. We were also elected joint representatives, which means that we represent the entire bond until its full repayment. As such, we monitor the bondholders and can request reports from them.
DMR Legal was a great fit to advise on bond restructuring. What special skills and experience did you and your colleagues bring?
DMR Legal is a young company, but our partners have years of experience in large law firms, restructuring consultancies, or management positions. We also have a strong focus in finance and restructuring cases. This combines expertise, experience, and a hands on approach with deep market knowledge. Our lawyers are familiar with the market standards and advisors so they can get to the point. We regularly advise on cases involving cross-border restructuring and financing.
Our market knowledge and legal expertise, combined with our management experience and experience working in financial advisory firms, allows us to identify and address the client’s commercial interests and place them at the center of our advice. This allows us to get to know our clients better and help them find a solution that is not only legal but also commercially beneficial.
When there are multiple stakeholders with differing interests, communication and project management skills are crucial.
Our lawyers are familiar with the market standards and advisors so they can get to the point.
What does the successful restructuring and reorganization of the bond mean to Metalcorp’s investors
It means that a Metalcorp Group insolvency was not likely and the odds of a full recovery were significantly increased.
Negotiations did more than preserve bondholder rights. They also resulted in significant improvements to bondholders’ positions through mandatory partial repayments and participation in collateral. There was an interest step-up up of 1,5%, participation in collateral, new security mechanism, participation in collateral, participation fees of 0.5%, and participation fee of 0.5% for participating bondholders. All bondholders will benefit from the negotiated down payments, additional fees and interest rates.
The approval rate for the restructuring proposal was 99.77%, and 100% for DMR to oversee the future developments as a joint representative with bondholders. This shows that real value was created for all. It was confirmed by the capital market reaction to the bond price.
Are you positive that the German bond market will see more of these types of restructurings?
Yes. We believe there will be more issuers who will face problems refinancing or repaying their bonds. Today’s capital market is quite different from five years ago. This is the normal term for a German bond. Refinancing becomes more costly as interest rates rise and, because investors are more cautious with their money, is often impossible. In 2022, we advised Metalcorp on four major German bond restructurings. We expect this number to double by 2023, since we are seeing increasing demand for our restructuring advice. Soon, there will be many more clients who need advice than there are lawyers with the time to offer it.
Can you name industries or companies that could default in the near-future?
We monitor the market and have both a long and short list of companies that we think will have trouble repaying their debts in the near future. We cannot name any industries, but the real estate, automotive, energy-intensive manufacturing and healthcare industries are all under threat. All industries that are facing operational problems (energy prices and real estate market stagnation; electronic mobility), along with the turned financing market, high interest rates, and years of cheap money, will likely have repayment issues in the near future.
What advice would you give to a company that is facing liquidity problems or problems with refinancing their bonds?
Refinancing and restructuring cases can be difficult because the debtor often acts too late. Most debtors believe they can find a solution quickly and start to talk with creditors too late. This is not usually a sign of bad faith. However, managers and CFOs are often very involved in their day and have limited experience with restructuring. Lawyers can provide valuable advice that will help you identify the options and take the steps necessary to prevent default from happening. Everyone is only limited in their ability to try to fix it, rather than actively working towards a solution.
Communication and organisational skills are crucial as you will often face multiple creditors. However, you also have to negotiate with shareholders, employees and directors. Professional advisors can help streamline complex cases such as restructuring or refinancing, especially when they are involved in large-scale financial, legal and communicational matters.
DMR can only offer advice on bond restructurings
No. No. That includes tradeable instruments such as bonds, German Schuldscheine or certificates, but also ‘classic’ term loans, acquisition-/leveraged finance, venture debt and high-yield finance, real estate, project, asset-based finance, digital finance, crowdfunding and crypto finance. We can help both creditors and debtors in all types of difficult situations, including insolvencies, restructurings out of court, self-administration or restructurings under new German StaRuG. In cases where no solution is possible, our litigation department assists.