The art of the possible: the APCOA restructuring 1

Briefing note December 2014

The art of the possible: the APCOA restructuring The English Court has sanctioned schemes of arrangement in respect of the APCOA Group – a European car park operator headquartered in Germany. It is the second round of schemes for the Group in the year. The latest schemes facilitate a full scale restructuring, although final implementation was concluded consensually with all key lenders.

The restructuring essentially involved needed to facilitate its implementation. the rescheduling of €660m of Key issues APCOA's senior debt. Lenders The extension schemes agreed that approximately 55% of A summary of the issues arising in  APCOA restructuring scheme – such debt would be structurally respect of the first round of schemes approved subordinated by way of a hive-up to a is set out in our previous briefing  Modifications to scheme required new holding company for the Group dated 15 April 2014 entitled before sanction granted which would ultimately be owned by "Schemes of Arrangement: Another  Reinforces English Court's lenders. This resulted in a significant Step Forward". importance on international deleveraging of the operating group, restructuring stage The first schemes only sought to enabling a more sustainable debt extend the maturity date in the  Provides excellent general structure going forward. Outstanding facilities agreements governing the guidance on class and fairness bridging finance (€34m) was repaid in debts, thereby giving the Group issues full whereas outstanding second lien breathing space to complete a debt (€65m) was exchanged for 7% substantive restructuring. The key enforced in the relevant cash or warrants at the option of the issue for determination at that stage jurisdictions; holder. was whether the English Court had  lenders were aware that the APCOA - the long road the power to approve the schemes purpose of the change to the given that the key connection to the Philip Hertz (co-head of the English facilities agreement was to jurisdiction was that the governing law Restructuring practice) who, together facilitate English schemes of and jurisdiction clauses in the senior with Stefan Sax (head of the German arrangement; facilities agreement were English law Restructuring practice), advised the  the schemes were unopposed and the English courts (having been Group on their innovative (they were supported by nearly changed shortly beforehand from restructuring, comments "the 87% by value of lenders); German law and the German courts restructuring has been a long and  the lenders were sophisticated with the consent of 66% of lenders). eventful process but in the end it was with the benefit of independent The Court approved the extension overwhelmingly supported by advice; and schemes on the basis that: creditors. It is really an important  the schemes were limited in milestone in the development of  independent foreign law expert nature, seeking only an extension schemes in an international context". opinions confirmed that the to the maturity date in the changes made to the facilities As creditor support for the relevant facilities agreements. agreement would be valid and restructuring was not unanimous, the schemes recognised and schemes of arrangement were

2 The art of the possible: the APCOA restructuring

The restructuring schemes  the lenders' rights as against the proceed, it noted that it would be wary APCOA companies in respect of of accepting jurisdiction if the choice The purpose of the second round of the turnover arrangements were of law had been entirely alien to the schemes was to implement the without any real substance (and parties' previous arrangements or if substantive restructuring. However, therefore did not give rise to a the change had no discernible the restructuring schemes faced separate class); rationale. This was not the situation in vigorous formal opposition from one  given that the turnover the present case because: lender who held approximately 7% of arrangements had been the senior debt. The lender argued  at the time that approval for the terminated prior to the that the restructuring terms did not change of law was sought, commencement of the scheme reflect that it was in a different lenders were advised that the proceedings, any difference in position to other senior lenders. The change would be a gateway to rights between the lenders and key difference it highlighted was that, the implementation of English the APCOA companies had been unlike other senior lenders, it had not schemes; removed in any event; and agreed to turnover certain amounts  the original facilities agreement received by it to the providers of the  even though the turnover had identified and selected €34m bridging finance (the turnover arrangements may have been English law for certain limited arrangements). terminated in order to avoid purposes; separate classes, this had not  two of the APCOA companies The opposing lender raised many been an objectionable subject to the scheme were legal and technical challenges manipulation of the classes. including whether: incorporated in England and The Court's view was unaffected by Wales and a number of lenders  it was in a different class to other the fact that, prior to the termination of managed from London offices; senior lenders; the turnover arrangements, the  the intercreditor agreement parties to those arrangements had  the votes of lenders who were provided that the exclusive place entered into a lock up agreement also bridging finance providers of performance for all rights and obliging them to support the should be discounted due to their obligations under the finance restructuring. collateral interest (such interest documents was London; and being the fact that, in the Collateral interests  none of the lenders had objected restructuring, the bridging facility, to the choice of law or the would be repaid in full); The Court refused to find that senior jurisdiction in respect of the lenders who were also bridging  there was a sufficient connection extension schemes. with the jurisdiction; and finance providers had a collateral interest. This was due to the relatively In addition, it was noted that the  certain obligations in the small size of the bridging facility but restructuring schemes offered a schemes constituted "new also due to the evidence from senior means of facilitating the restructuring obligations" which could not be lenders confirming that their necessary to avoid insolvency in the forced upon it by way of a motivation for approving the scheme interest of all creditors. Given these scheme. was not primarily based on the factors, the Court determined that the Class issues repayment of the bridging finance but same faith and credit should be on the impact of the restructuring as a accorded to the new choice of law The Court determined that the whole. and jurisdiction as if it had been the opposing lender did not fall into a original choice. separate class from other senior Cross border issues lenders. It found that: It is worth noting that, whilst the Turning to consider cross border opposing creditor had acquiesced in  the turnover arrangements were issues, the Court noted that the the extension schemes based on the substantively between the schemes tested the boundaries of its change of law and jurisdiction, the lenders "behind the curtain" jurisdiction. Whilst the Court Court determined that this did not (rather than between the lenders determined that there was a sufficient preclude it from challenging the and the APCOA companies); connection to the jurisdiction to

The art of the possible: the APCOA restructuring 3

restructuring schemes. The test of aggregate potential liability of the international context and the sufficiency of connection would be guarantee lenders remained the same consideration of the legal rights of affected by the nature and terms of as prior to the restructuring). creditors versus their interests. each scheme and therefore could be The opposing lender argued that this Stefan Sax, says "Arguably, the most tested in respect of each scheme. arrangement imposed a new liability innovative aspect of the scheme New obligations on it as a guarantee facility lender and related to the change of the governing argued that it was not within the law in order to establish jurisdiction - it The facilities agreement contained a scope of the scheme legislation to had simply never been tested before. guarantee facility pursuant to which a bind creditors to new obligations. Although it was a pioneering step in bank would issue guarantees on APCOA argued that the arrangement this case, it will not be appropriate in behalf of the Group to third parties. was a simple rollover of the existing all cases". The lenders under the guarantee facility. Due to a lack of authority on facility were then obliged to indemnify Philip Hertz concludes "APCOA this question, the Court said that it the issuer of the guarantee in the represents a really ground breaking would not sanction the scheme whilst event that any demand was made development in international it retained this obligation. Accordingly under it. restructurings. It demonstrates that the schemes were amended to while solutions may not always be The restructuring schemes included provide that only lenders willing to obvious at the outset – being willing to an obligation on the guarantee participate in the ongoing guarantee push the boundaries can make what lenders to provide the indemnity (i) facility would be obliged to do so. may first appear to be impossible a over a longer period of time; and (ii) reality." notwithstanding a change in the Conclusion identity of the issuer bank. From the perspective of developing Clifford Chance restructuring Furthermore, as the guarantees the scope of schemes, this first teams in London and Frankfurt issued thereunder expired, new instance decision provides some acted on behalf of the APCOA guarantees could be issued to excellent guidance, particularly with Group in relation to the different third parties (albeit that the regards to the use of schemes in an restructuring.

What is a scheme of arrangement? A creditors' scheme of arrangement is a statutory contract or arrangement between a company and its creditors (or any class of them) made pursuant to the Companies Act 2006. It is not an insolvency proceeding but can be implemented in conjunction with formal insolvency proceedings, such as administration or liquidation or on a standalone basis. The scheme becomes legally binding on the company and such creditors (or any class of them) if:  a majority in number representing not less than three-fourths in value of creditors (or any class of them) present and voting in person or by proxy at meetings summoned pursuant to an order of the court, vote in favour of the scheme;  the scheme is sanctioned by a further order of the court after the creditors' meetings; and  an office copy of the order sanctioning the scheme is delivered to the Registrar of Companies for registration. If the requisite majorities set out above are obtained, the scheme will bind all the relevant company's creditors as at the date of the scheme (or the relevant class or classes of them) whether they were notified of the scheme and/or whether they voted in favour of the scheme or not. Notwithstanding this, the court will need to be satisfied that every effort has been made to contact all creditors. A scheme provides a useful mechanism for: (i) overcoming the impossibility or impracticality of obtaining the individual consent of every creditor to be bound to a proposed course of action; and (ii) for preventing, in appropriate circumstances, a minority of creditors from frustrating what is otherwise in the interests of a company's creditors generally (where, for example, the alternative is an insolvency process which may destroy value). It can be used for implementing almost any compromise or arrangement a company or its creditors and members may agree amongst themselves (i.e. debt-to-equity swap, moratorium or amendments to existing agreements).

4 The art of the possible: the APCOA restructuring

Authors

Giles Allison Jeanette Best Philip Hertz Senior Associate Senior Associate Partner E: giles.allison E: jeanette.best E: philip.hertz @cliffordchance.com @cliffordchance.com @cliffordchance.com

Oda Lehmkuhl Alexandra Pacey Stefan Sax Counsel Associate Partner E: oda.lehmkuhl E: alexandra.pacey E: stefan.sax @cliffordchance.com @cliffordchance.com @cliffordchance.com

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