By Jesús Aguado and Chiara Elisei
Spain’s largest private industrial group, Celsa, is putting a new insolvency law to the test with creditors and family owners unable to agree on how to restructure roughly 2.8 billion euros ($3.04 billion) of debt.
What we know so far:
WHAT IS CELSA?
Celsa España, part of the Celsa Group, is an industrial steel group founded in 1967 by the Rubiralta family.
Headquartered in Barcelona, Celsa has 120 work centres across nine European countries and is present in seven Spanish regions and 13 provinces, predominantly Cantabria, Catalonia and the Basque Country.
The firm employs 4,500 staff in Spain.
FINANCIAL WOES
The COVID crisis affected Celsa’s business due to lockdowns and difficulty obtaining raw materials.
Like other steelmakers, Celsa was forced to make production cuts last year as energy prices soared after Russia’s invasion of Ukraine.
In June, Spain’s government authorised 550 million euros in state aid to Celsa, approved by the European Commission.
The aid was split into a 280.5 million euro participatory loan, a hybrid instrument that companies can convert into capital, and an ordinary loan of 269.5 million euros.
Its disbursement was subject to an agreement between creditors and the company, two sources with knowledge of the matter said.
On top of the state aid, the Rubiralta family also committed to undertake a 50 million euro capital increase.
BATTLE WITH CREDITORS
Holders of Celsa’s debt include GoldenTree Asset Management, Cross Ocean Partners, Sculptor Investments, which all bought the debt at a discount, as well as Goldman Sachs, according to court documents.
Creditors initially refused to allow Celsa or shareholders to use the public money to repay outstanding debt at a discount and presented their own restructuring plan under Spain’s new law.
While Celsa shareholders are now open to the possibility of creditors taking some of the company’s equity, as long as the family owners retain control, the make-up of that split is a stumbling block, one of the sources and a third source said.
NEW LEGISLATION
Celsa’s restructuring plan is the first big test of Spain’s new law which allows debtors to make use of pre-insolvency mechanisms early and benefit from court protection when they expect to be unable to regularly meet debt obligations due within the next two years.
Debtors can benefit from a three-month period to negotiate a restructuring plan with creditors that may be extended.
The reformed law groups creditors into classes, whereby creditors holding rank in the order of payment of claims must belong to the same class.
Creditors holding claims affected by restructuring plans must vote together by class, the general rule of thumb being that a majority of the classes must vote in favour of the plan for it to be approved.
Court approval would allow a restructuring plan to be extended within and between different creditor classes.
NEXT STEPS
Banks have agreed to extend by another six months a 525 million euro loan for Celsa to secure short-term liquidity to pay providers, the first two sources said.
As the creditor classes are approved, the next step will be to present a final restructuring plan showing Celsa’s capital structure post restructuring.
Lexaudit, the court-appointed consultancy firm specialising in restructuring and insolvency, will then assess whether the collateral – the assets used to guarantee the debt – covers the value of the debt.
Outstanding questions revolve around the set-up of a new company and on what terms the revolving debt is renewed to allow the steel maker to service its debt.
($1 = 0.9180 euros)
(Reporting by Jesús Aguado and Chiara Elisei; Editing by Dhara Ranasinghe and Christina Fincher)