Pescanova Hidden Debt Lenders Face 90% Losses: Corporate Finance

Fish Market Stall At La Boqueria Market In Barcelona
Founded in 1960, Pescanova SA developed the world's first fishing boat equipped with a freezer, allowing the company's boats to fish waters around Brazil, Uruguay and Argentina. Photographer: Stefano Buonamici/Bloomberg

Pescanova SA’s loans show that creditors may accept losses of almost 90 percent as they negotiate with the fishing company to restructure more than 2 billion euros ($2.7 billion) of previously undisclosed debt.

The loans are trading at about 12 cents on the euro while 160 million euros of its convertible bonds are quoted at about 14 cents, according to brokers’ prices and data compiled by Bloomberg. Lenders including Banco Sabadell SA are willing to accept losses of 60 percent on the debt in exchange for a 90 percent stake in the Pontevedra, Spain-based business, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.

Pescanova will be liquidated if it doesn’t agree to a restructuring deal in the coming months, Juan Manuel Urgoiti, the company’s chairman has said. His predecessor Manuel Fernandez de Sousa-Faro has been under investigation for possible fraud by a Spanish court after auditors found the company had more than double the amount of debt than previously reported.

“An agreement will be reached with creditors and it will probably see banks accepting a 90 percent haircut,” said Marco Elser, a Rome-based distressed-debt analyst at Advicorp Plc, an investment bank. “The company has value and a decent business model but it has an unsustainable capital structure because the banks lent it too much money.”

Loan Prices

Brokers have marketed at least 185 million euros of Pescanova’s loans at less than 12 cents on the euro in the last month, four people with knowledge of the matter said Feb. 7. The fish producer’s 160 million euros of 8.75 percent convertible bonds, which were quoted at 109 cents on the euro in March, slumped to a record low of 6.5 cents in August and are quoted at 14.3 cents today, prices compiled by Bloomberg show.

A Pontevedra, Galicia-based spokesman for Pescanova declined to comment on the company’s restructuring. A spokesman for Sabadell based in Barcelona declined to comment on the company’s restructuring plans.

Pescanova borrowed from more than 100 lenders, including Sabadell, Banco Popular Espanol SA, CaixaBank SA, Banco Bilbao Vizcaya Argentaria SA, Banco Santander SA, Bankia SA and NCG Banco SA, according to a list of creditors prepared by Deloitte. These banks joined the Galician government in a syndicate to lend 56 million euros last year to help Pescanova keep operating, the company said in a June 28 statement.

Lender Talks

Restructuring offers for the operator of fish farms and processing plants from Spain to Chile, as well as more than 90 ships, must be filed to the bankruptcy court by March 3. Proposals can be submitted by creditors holding at least 20 percent of the company’s debt, according to a Feb. 13 statement from noteholder representative BNP Paribas SA.

Pescanova’s board began talks with lenders last year and chose a consortium including KKR & Co., Spanish brewer Damm SA, Ergon Capital Partners SA and Luxempart SA to restructure the company. Their proposals to lenders include an 80 percent debt reduction in exchange for creditors taking a stake of as much as 10 percent, according to a Barcelona-based spokeswoman for Damm, who asked not to be identified citing company policy.

A Luxembourg-based spokesman for Luxempart declined to comment on the proposal as did a spokeswoman for Ergon in Madrid and Ludo Bammens, a London-based spokesman for KKR.

Business Plan

Another group of investors, which includes BlueCrest Capital Management, are also preparing their own plan to reorganize the company, said a person familiar with the proposal, asking not to be identified because they’re not authorized to speak about it.

A London-based spokesman for BlueCrest declined to comment on the company’s involvement in the restructuring of Pescanova.

The company may need 185 million euros alongside the debt restructuring, according to a business plan produced by PricewaterhouseCoopers LLP filed with the Spanish stock market regulator.

Pescanova filed for bankruptcy protection in April, a month after its shares were suspended and the Spanish regulator CNMV began an investigation into the company. The court then ordered the removal of the company’s board and chairman.

Spanish Court

KPMG LLP found “accounting practices whose objective was to present artificially low debt figures and therefore present artificially high results,” according to a July 10 report from court-appointed receiver Deloitte LLP. Examples included “a significant volume of selling and buying transactions that had no operative substance and whose main aim was to obtain bank financing,” according to the company’s first annual report since the insolvency filing.

In September a Spanish court ordered former chairman Fernandez de Sousa-Faro to put up 178.9 million euros to cover possible liabilities as part of an investigation of possible fraud, according to a ruling e-mailed by the court in Madrid. A Madrid-based spokesman for Fernandez de Sousa-Faro declined to comment on the investigation.

Pescanova had 3.25 billion euros of net debt at the end of 2012 and about 3 billion euros at the end of 2011, Deloitte wrote in a Dec. 10 statement. The company’s first-half results from 2012 said financial debt was 968 million euros at the end of June.

Chile Unit

Founded in 1960, Pescanova developed the world’s first fishing boat equipped with a freezer, allowing the company’s boats to fish waters around Brazil, Uruguay and Argentina. The company expanded to operate fisheries and processing facilities from Nicaragua to Japan and Namibia.

As part of the restructuring process, Pescanova is seeking to keep its international network of businesses intact to help it preserve the value of the company, Urgoiti said Feb. 7. The fish producer sold its stake in its Australian business at the end of 2013 and had talks on selling its Chilean division in April.

“Pescanova’s Chilean unit is an important part of the company’s empire,” said Advicorp’s Elser. “The best strategy would be to keep the entire company at least until the end of February or March and the deal is done.”

Pescanova’s earnings before interest, taxes, depreciation and amortization totaled 56 million euros in 2012 compared with 42 million euros the year before, according to a Sept. 2 Deloitte report. The company had previously reported Ebitda of 127 million euros in the first nine months of 2012.

“Until the audit was able to clarify exactly how much debt Pescanova had neither the banks nor any shareholder was willing to take a position and make an offer,” said Jorge Abad, a Madrid-based fixed-income investor at Renta 4 Gestora SGIIC SA, which manages 2.1 billion euros of assets. After a restructuring that cuts Pescanova’s debt “it will look like a different company,” he said.

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