 |
| Steve LeDoux |
Holders of Foster Wheeler's bank debt are getting paid out in full plus fees, with some reaping major gains after buying the paper when it was trading as low as the high 60s. The deal is part of the company's highly unusual voluntary out-of-court exchange offer. "The fact that we were able to structure the exchange offer to bring new money to the table in order to pay the banks out was effectively what we needed to do to get permission from the banks to do the exchange offer," noted Steve LeDoux, a managing partner with Rothschild, which advised Foster Wheeler. The bank debt is being replaced by $120 million of new notes that will be funded from members of the bondholder group. The original $120 million credit was led by Bank of America and included a mix of U.S., Canadian and European banks. "It started out as a broad syndicate of traditional banks and went more towards the hedge fund world," LeDoux said, commenting that a diverse array of interests had to be satisfied. "By the time we were towards the middle and end of the deal it was at least 50% distressed debt investors." Holders at the time of the company's fifth amendment to the credit last May included, Banc of America Strategic Solutions, Tennenbaum Capital Partners, Quadrangle Group, Mariner Investment Corp., The Baupost Group, Morgan Stanley and The Coast Fund.
Firms that stayed the course from the start to the signing of the last amendment include Libertyview Fund,The Bank of Nova Scotia, Merrill Lynch, Deutsche Bank, BNP Paribas, Société Générale and Citadel Wellington Partners. Lenders who cashed out earlier were Wachovia Bank, ABN Amro, Toronto Dominion, National Westminster Bank, Salomon Brothers, PNC Bank, The Bank of New York's Perryville III Trust, Orix Merchant Banking and The Royal Bank of Scotland.
The exchange offer reduces the company's $1 billion debt to $450 million through a debt-to-equity conversion. "All of the debt that would have been due is either equitized and/or refinanced and pushed out in 2011," LeDoux noted. "The beauty of that was from a senior noteholder perspective you got 25% equitization and the 75% has a maturity of 2011 as opposed to the old notes which were 2005," LeDoux said. "An out of court voluntary exchange offer that doesn't have a pre-pack attached is a very rare transaction," he added.
"It was a very unique and unusual deal but it was perfect for this business and was exactly what this business needed," reiterated, Raymond Milchovich, chairman, president and ceo of Foster Wheeler. The engineering and energy company wanted to avoid bankruptcy because of the contract nature of its business. "Filing for bankruptcy is likely to create a lot of fear among our customer base," LeDoux said. "What would have exacerbated the fear among the customer base is the fact that we had asbestos [liabilities]. History would suggest that very few companies reorganize in a timely fashion if they had an asbestos liability." Meanwhile, if business and bookings were going down in Chapter 11, senior creditors would have likely pushed for asset sales which would have likely had a very detrimental impact on the recovery of junior creditors, he noted.
The company's troubles began in the mid-to-late '90s when the previous management team focused more on growing backlog and not on the expected profitability of the contracts they were putting into backlog. In addition, the overall downturn in the U.S. power market caused a downturn in the company's business. Rothschild became involved with Foster Wheeler in January 2002 through a pitch process. "The company was about to be in default of a bank deal and realized they needed financial advisors," LeDoux said.