Adler’s loan to himself spurs fund to seek ways to recoup cash
(Bloomberg) – Adler Group SA creditors are exploring ways that could potentially get them their money back, after the German owner made seemingly conflicting disclosures about a loan it took out from a subsidiary.
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In question, 265 million euros (280 million dollars) borrowed from a unit linked to its subsidiary Adler Real Estate at the end of December. The company only disclosed the loan at the end of March – when it said the loan agreement was signed that day – prompting investors to ask if the money could have been used without the proper approval for fill impending liquidity holes.
Bondholders are now seeking advice from restructuring advisers and law firms on whether this constitutes a breach of the terms of the bond, according to people familiar with the matter. Some of Adler Real Estate’s creditors also argue that the loan effectively puts the money out of their reach, should the company default, the sources said, asking not to be identified in internal discussions.
The discrepancy in the dates prompted questions from investors during a call with Adler management on Tuesday, asking why there was a three-month discrepancy. Chairman Stefan Kirsten, appointed in February to help restore confidence in the company after allegations of fraud by short seller Fraser Perring, pledged to resolve the issue with investors after the call, although Thursday after noon, no update was provided, according to the bondholders.
“You’ll never catch me backdating anything in my life,” Kirsten said on the call, after being asked if he was involved in approving the loan deal months ago. after its grant. “Do me a big favor and never put me in touch with the backdate of anything, that would be much appreciated.”
A representative for Adler declined to comment on efforts by bondholders to organize and said the company continues to take questions from investor calls and provide answers.
“We will provide information in due course,” the spokesperson said in an emailed statement.
Adler has tried unsuccessfully to regain investor confidence since Perring’s Viceroy Research accused him of being effectively run by a small group of outsiders, including Austrian tycoon Cevdet Caner, for their own benefit. The owner sold off much of its assets to reduce debt and bolster cash, but its failure to refute some of Perring’s allegations through a forensic investigation only hastened the sale of its assets. stocks and bonds.
Creditors are now also in talks among themselves to form a group large enough to demand early repayment of bonds in case the company breaches debt rules, some people say. The terms of the bonds establish varying thresholds – 15% of the principal amount in one case, 25% in another – before notice can be given to the company.
The disputed loan was granted a day before the Adler Group repaid a €300 million revolving credit facility with its banks which it had drawn down earlier in the year to bolster its liquidity. The owner says he used the money from the divestitures to pay off the line of credit. These asset sales were finalized on December 29, the same day the loan was taken out. Adler announced their completion the following week.
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Adler said the line of credit was no longer needed because the company had plenty of cash and the facility had since expired. Some investors, however, wonder why a company that has only recently experienced cash flow problems would forego access to such financing.
When Adler first disclosed the existence of the loan three months later, he had to correct his initial file after he understated the amount of the loans by around 12 million euros. And it was not until Adler Real Estate filed its annual accounts on April 30 that investors learned that the loan had already been granted in December.
The disclosure added to a perception of opacity that came to the fore again last weekend, when the owner released long-delayed annual results. Its auditor, KPMG, declined to approve the accounts, saying Adler withheld information necessary to assess key transactions. The unusual step shocked the markets, sending the company’s stocks and bonds falling even further.
Bondholders wondered whether KPMG’s refusal meant the Adler Group’s result had even been audited. The company was required to file audited accounts by the end of April in order to comply with the terms of its obligations. President Kirsten insisted that, from a legal point of view, the accounts were indeed audited.
Still, S&P Global Ratings lowered its credit rating on Adler on Thursday, citing KPMG’s decision. The termination of the revolving credit facility also means Adler has less cash, so the company is now even more dependent on asset sales to repay its next obligation in April 2023, S&P said.
Meanwhile, hedge funds experienced in restructurings are stepping in to collect Adler’s debt at discounted prices. Firms such as CarVal Investors, Farallon Capital Partners, GLG Partners, Goldentree Asset Management, King Street Capital Management and Taconic Capital Advisors have been among Adler Group and Adler Real Estate bond buyers in recent weeks.
Representatives from GLG, King Street and Taconic declined to comment on the bond purchases. Spokespersons for CarVal, Farallon and Goldentree did not respond to messages seeking comment.
Adler Real Estate bonds due 2023 are listed at around 85 cents on the euro and credit default swaps securing the debt showed there was a 77% probability of default within five years. Bonds from parent company Adler Group are trading between 55 cents and 70 cents, according to data compiled by Bloomberg.
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