Avangardco offers 3Y postponement of 2015 bond, smaller coupon

Europe’s leading egg producer Avangardco (AVINPU, AVGR LI) has initiated a restructuring process of its USD 200 mln Eurobond maturing on Oct. 29, the company reported in its stock exchange notice on Sept. 17. It has asked bondholders to approve a maturity extension for three years and decrease the coupon payment from the earlier level of 10% to 4% as of Oct. 29, 2015; to 2.5% in April and October 2016; to 5% in April and October 2017; and to 7.5% and 10% in April and October 2018, respectively. The company also offered a 2.5% early instruction fee for those accepting the offered terms and acceding a lockup agreement by an Oct. 15 deadline, or a 5% late instruction fee for those having agreed by an Oct. 20 deadline.

The company is doing the restructuring process in the way of a “scheme of arrangement”, which needs approval of the deal by (1) the bondholders at their meeting scheduled for Oct. 22 (with a quorum of 75% and approval rate of 75%) and (2) the High Court of England. Under standard restructuring procedure, which would involve only bondholders, Avangardco would have needed a 90% approval rate. The company reported that the holders of 36% of the bond have already agreed on the offered conditions following confidential discussions.

The company also reported that it has defaulted on USD 5.7 mln in loans to Private Export Funding Corporation, and it’s also going to ask bondholders to waive a cross-default covenant. Avangardco also stressed that if the restructuring scheme isn’t approved, it will default on the bond, which will trigger a cross-default on Ukrlandfarming’s (UKRLAN) debts, including the USD 500 mln Eurobond.

Avangardco expects cash revenue of USD 113.1 mln in 2H15, which would amount to total 2015 revenue of about USD 234 mln (-44% yoy) and the same USD 234 mln in cash revenue in 2016.

Alexander Paraschiy: Given yesterday’s 33.8% of par price for AVINPU bonds, the market was anticipating a much worse restructuring offer from the company. Clearly, this restructuring offer in not necessarily the last one, given that Avangardco failed to offer any amortizing repayment schedule for the bond. The company’s revenue outlook for 2016, which is flat yoy, also looks like an exaggeration.

If the restructuring is done and the company repays the bond smoothly on the amended terms, the bond would yield 47.2% to 50.4% to its extended maturity, depending on whether bondholders meet the early acceptance deadline.