DEAL OF THE WEEK
Cadwalader handles bond rejig for Brunner in Europe

Herbert Smith bursts into bondholder market with groundbreaking deal

Cadwalader Wickersham & Taft has advised the Brunner Mond Group on the first full high-yield bond restructure to take place in the European high-yield market.
The deal, led by financial restructuring partner Andrew Wilkinson, was structured to overcome difficulties relating to New York law, which governed the high-yield bonds.
Under US provisions, restructuring required the unanimous agreement of the bondholders. But by devising a UK scheme of arrangement using Section 425 of the Companies Act 1985 and Section 304 of the US Bankruptcy Code, the prescribed agreement of the bondholders was reduced to 75 per cent.
This structure was first used by Cadwalader in relation to insurance company reconstructions, but is becoming the model for European high-yield restructuring.
The full debt for equity conversion took place on 15 December, when the bonds were cancelled and issued as shares.
The deal was also unusual in that the bondholders put money into the company on a senior secured basis in order to ensure that the business was funded properly after the restructuring. There was a complete refinancing of the company's senior debt and the bondholders' participation in the senior facility gave them additional shares, and therefore a controlling interest in the company.
A Herbert Smith team, led by Kevin Pullen and including Simon Chadney, advised the bondholders. Allen & Overy (A&O) advised Chase Manhattan as the senior debt funders and DLA advised Barclays Bank as the new senior debt providers.
The high-yield debt market is monopolised by Cadwalader and Bingham Dana, so it was a major coup for Herbert Smith to be instructed by the bondholders.
The bondholders' committee included Citibank, JP Morgan, WestLB, Barclays Capital, CFSC Wayland Advisers and Aberdeen Management.
Pullen said that the work originated through his relationship with the Cargill entity CFSC. “We've done work for Cargill in the UK and my name was passed to someone in the US,” he said. “But we've not acted for Barclays Capital, WestLB or Citibank on distressed debt before.”
Herbert Smith is actively targeting the high-yield market. The firm's head of insolvency Stephen Gale was moved in to the finance division a year ago and Pullen's role is to rebuild the recovery practice alongside the insolvency group.
In November, the firm advised Time on its acquisition of IPC Media. The deal included a number of high-yield debt problems.
Pullen said that there are opportunities for firms such as Herbert Smith because the high-yield bond market is getting into difficulties. “A&O and Clifford Chance always act for the lenders, but the corporates and the bondholders also need advisers,” he said.
But to compete with Cadwalader and Bingham Dana, firms will need UK insolvency and corporate capability, as well as US bankruptcy and US security capability. To date, this is not the case.