Vulture funds circling over Quinn Group's €1.2bn debt
Published 08/09/2010 | 05:00
International distressed debt investors, known in the markets as 'vulture funds', are circling the Quinn Group, according to two London-based restructuring advisers.
The company has debts of about €1.2bn and some of the privately held debt paper has been sold on by the original holders in recent weeks to these funds. Some bonds mature in just over a month.
But sources familiar with the negotiations said the extent of the buying had been small and the company remained on course with its own plans to restructure the debt.
Talbot Hughes McKillop is advising Quinn Group in relation to the situation. Barclays, the key bank lender, has its own advisers.
Distressed debt investors see the asset-rich conglomerate as a prime target because they hope it will struggle to refinance debt falling due this year and be left vulnerable to a debt-for-equity swap.
The sources separately said they had taken calls from investors looking for advice on how to extract maximum value from the situation.
A distressed debt trader confirmed the private placement notes had been changing hands in secondary trading at a discount, as the original lenders cut their losses by selling out of the deal below face value.
Vulture funds are looking to gain a hold in the Irish conglomerate by buying private placement notes issued by the Quinn Group.
Private placement notes are a type of long-term corporate debt raised from fairly conservative lenders in the US, including pensions and insurance funds. Unlike most bonds, the notes are not public securities and are rarely traded or held by large groups of investors. The lenders are typically more hands off than banks.
Even if the refinancing looks tricky for Quinn, distressed debt investing is a tough business and forcing a debt-for-equity swap, or grabbing assets, could prove extremely difficult.
A source said the notes were issued by a holding company, however, which makes it harder for lenders to get their hands on specific assets or trading companies.
Most of Quinn Group's debt is held by the institutions that originally made the loans and original lenders tend to be more amenable to rolling over debt when firms need to refinance.
More aggressive investors would have to build up a stake of at least 25pc in a piece of debt to have any chance of blocking a restructuring or of halting a refinancing of debt.
In fact, hedge funds are only targeting the private placement paper because more senior debt is not available in the secondary market.
Banks at the top of the capital structure have not been selling their debt, so Quinn's core lender group still includes Barclays and other banks that are unlikely to take an especially hard line on rolling over debt, or want to break up the business.
Distressed investors know that €80m of the private placement debt falls due in October. They are reckoning on the group not being able to repay or refinance the debt elsewhere.
If vultures hold enough of the paper to threaten to force a default, they could force major concessions out of the borrower.