Algeco Scotsman Takes First Step Towards Restructuring Billion Dollar Debt

  • Early acceptances to the exchange offer can be made by Feb. 27
  • Algeco’s PIK loan has increased in size to $699 million

Algeco Scotsman Inc’s exchange offer to restructure outstanding payment-in-kind loans is set to expire on March 6 having launched on February 13, according to a person familiar with the matter.

The modular-space company’s PIK loan, which was $400 million at launch in 2013, had grown to $699 million in January, said the person, who declined to be identified as the information is private. Early acceptances can be made by the close of February 27. The loan, issued by AS PIKCo, matures in May 2018.

Under terms of the exchange, PIK holders are invited to exchange their interest in the loan for a pro-rata portion of $95 million in cash and class B limited partnership interests in a newly formed company which will be a subsidiary of the group and hold all equity interests in Algeco Scotsman, the company said in the February 3 statement.

The exchange offer is possibly “a first step towards a broader restructuring,” credit analysts at Lucror Analytics Pte wrote after the February 3 announcement. “The interest burden will remain significant, and it is paramount for Algeco to achieve a sustainable EBITDA recovery, given the increasing need for further capital investments in the business. All said, we think Algeco has very little time to turn the corner.”

A representative for Algeco didn’t immediately respond to a request for comment.

The PIK loan is only a minority of the company’s debt pile. Algeco’s earliest major debt maturity is an asset-based revolving credit expiring in October, of which $869 million was outstanding at end-September 2016, data compiled by Bloomberg show. It also has $1.075 billion 8.5 percent notes and 275 million euros of 9 percent bonds due October 2018. A further $745 million of 10.75 percent bonds mature in 2019.

The company’s bonds have been rising in price in recent weeks. Its October 2019 unsecured notes are now trading at about 86 cents from around 70 at the start of the year, and up from as low as 25 a year ago, prices compiled by Bloomberg show.

Baltimore-based Algeco said February 3 it was aiming to clinch unanimous consent on the exchange and it has already secured ~72% of PIK loan backing. Gaining more than 75% backing enables the company to launch the exchange via English scheme of arrangement in a U.K. court.

The PIK restructuring may be a short term solution for this financial year, but investors will be keen to find out how long Algeco manages to extend the ABL, Lucror said. If management seeks to avoid a restructuring of the cash pay structure, owner TDR Capital LLP may need to provide “significant equity commitment,” added the analysts.

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