Schmolz + Bickenbach AG was sued by U.S. hedge fund GoldenTree Asset Management LP which accused the Swiss supplier of steel to carmakers of fraudulently marketing company bonds.
GoldenTree claims Schmolz and its agent BNP Paribas SA marketed bonds based on the management team’s “proven track record,” six weeks before the company fired some of those top executives, according to documents filed with the U.S. District Court in Chicago.
Schmolz sold 258 million euros ($337 million) of 9.875 percent, seven-year euro notes in May as slowing demand for steel in Europe pressured the company’s finances. The steelmaker’s board then fired Chief Executive Officer Benedikt Niemeyer and Chief Financial Officer Axel Euchner in June.
Schmolz’s board of directors “deliberately concealed” its intent to fire the executives after the offering, according to GoldenTree, which is based in New York and has $16.9 billion of assets under management. It added it wouldn’t have bought 41 million euros of the notes if it was aware.
“We are convinced we will be able to successfully defend against the complaint,” Schmolz + Bickenbach spokesman Adrian Steinmann said by telephone. The Emmenbruecke-based company is working on a response to the complaint and isn’t aware of litigation from other investors, he said.
GoldenTree’s general counsel Barry Ritholz and Cesaltine Gregorio, a spokeswoman for BNP Paribas, declined to comment.
Moody’s cut the rating on Schmolz’s euro bond one level to B3 on Feb. 25, citing a sharp downturn in European car industry demand. Schmolz has broken covenants on a separate 875 million-euro unsecured bank loan arranged by BNP and “is now seeking longer term relief from its lenders,” Moody’s said.
“GoldenTree probably has a strong position,” Martin Schreiber, an analyst with Zuercher Kantonalbank in Zurich said by telephone. “The negotiation power of Schmolz + Bickenbach could be somewhat affected because of the company’s high debt burden.”
The company “is very likely” to break more of its credit covenants so it is dependent on the banks, Schreiber said.
Schmolz fell 0.4 percent to 2.53 Swiss francs.