Colouroz Investment 2 LLC
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 13 July 2020 |
| Neutral Citation | [2020] EWHC 1864 (Ch) |
| Court | Chancery Division |
| Docket Number | Case Nos: CR-2020-002833, CR-2020-002834, CR-2020-002835, CR-2020-002836, CR-2020-002837, CR-2020-002838 and CR-2020-002839 |
| Date | 13 July 2020 |
[2020] EWHC 1864 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
Mr Justice Snowden
Case Nos: CR-2020-002833, CR-2020-002834, CR-2020-002835, CR-2020-002836, CR-2020-002837, CR-2020-002838 and CR-2020-002839
In the Matters of
Daniel Bayfield QC and Ryan Perkins (instructed by Milbank LLP) for the Companies
Hearing date: Monday 6 July 2020
Approved Judgment
These are applications by ColourOz Investment 2 LLC (“ColourOz”), Flint Group Packaging Inks North America Holdings LLC, Flint CPS Inks Holdings LLC, ANI Printing Inks B.V., Flint Digital Solutions Holdings B.V., Flint Group GmbH (“Flint GmbH”) and Flint Group Sweden Holding AB (together, the “Companies”).
Each of the Companies applied for an order convening one or more meetings of certain of its creditors (the “Scheme Creditors”) for the purpose of considering and, if thought fit, approving a scheme of arrangement under Part 26 of the Companies Act 2006 (“Part 26” and the “CA 2006”). There are seven schemes in total, one for each of the Companies (the “Schemes”).
At the conclusion of a hearing on Monday 6 July 2020 I indicated that I would make the order sought by the Companies with one modification. I indicated that I would give my reasons in writing, which I now do.
The Flint Group and its liabilities
The Companies are part of the Flint group of companies (the “Group”), which is a leading global supplier of printing and packaging products. Each of the Companies is an indirect wholly-owned subsidiary of Flint Holdco S.à r.l. (“Holdco”). The Group employs approximately 6,800 people worldwide.
The Group's main financial liabilities arise under two secured credit facility agreements (the “First Lien Credit Agreement” and the “Second Lien Credit Agreement”) (together, the “Credit Agreements”). Each of the Companies apart from ColourOz and Flint GmbH is a borrower under the First Lien Credit Agreement only. ColourOz is a borrower under the Second Lien Credit Agreement only; and Flint GmbH is a borrower under both Credit Agreements.
The loan facilities under the First Lien Credit Agreement include term loans which have tranches denominated in US Dollars and Euros (the “First Lien Term Facilities”). The euro equivalent of the total principal amount currently outstanding under the First Lien Term Facilities is about €1.6 billion. The First Lien Term Facilities are currently scheduled to mature on 5 September 2021.
The loan facilities under the Second Lien Credit Agreement comprise term loans which have tranches denominated in US Dollars and Euros (the “Second Lien Term Facilities”). The euro equivalent of the total principal amount currently outstanding under the Second Lien Term Facilities is approximately €135 million. The Second Lien Term Facilities are currently scheduled to mature on 5 September 2022, i.e. one year after the existing maturity date of the First Lien Term Facilities.
The Scheme Creditors under each of the Schemes are the lenders to the respective Company under the First and Second Lien Term Facilities (together “the Term Loan Facilities”). The First Lien Credit Agreement also includes a revolving credit facility (the “RCF”) with total lending commitments of €103 million, of which €56 million is currently drawn down and €10 million is utilized in the form of letters of credit. The RCF is currently scheduled to mature on 5 March 2021.
Each of the Term Loan Facilities are guaranteed by numerous companies within the Group (including each Company, to the extent that it is not a borrower under the term facility) and benefit from a wide-ranging security package.
The ranking and priority of the facilities under both of the Credit Agreements is governed by an intercreditor agreement (the “ICA”). Under the ICA, the First Lien Term Facilities rank in priority to the Second Lien Term Facilities. This means that, in the event of a sale of the Group's assets, the Second Lien Term Facilities would only be repaid if any proceeds remained after the First Lien Loan Facilities had been discharged in full.
The purpose of the Schemes
The evidence is clear that Group is not in any immediate financial distress and has not suffered any serious financial detriment as a result of the COVID-19 pandemic. However, the Group is concerned that its current and forecasted liquidity levels will not be sufficient to repay or support a refinancing of the amounts outstanding under the Term Loan Facilities in full on their existing maturity dates. Accordingly, in the absence of an extension to the existing maturity dates, the Group would be forced to conduct an expedited sales process over the next year with a view to selling the business and assets of the Group.
An expedited sales process would be viewed in the market as a distressed sale, which would be likely to reduce the price that the Group could obtain. Moreover, due to the market conditions caused by the COVID-19 pandemic, it is not clear that such any such sale could be achieved in the short to medium term. Even if a sale could be achieved, the Group believes, on the basis of an independent valuation produced by EY, that the proceeds of any expedited sale in the current market conditions may well be insufficient to repay the amounts outstanding under the Credit Agreements in full. EY's valuation identifies three possible scenarios that could result from a sale: a high case, a medium case and a low case. In the medium case and the low case, the proceeds of sale would only be sufficient to discharge the First Lien Term Facilities in part (and would provide a nil return on the Second Lien Term Facilities). In the high case, the proceeds of sale would be sufficient to discharge the First Lien Term Facilities in full and to provide a small recovery (less than 10% of face value) on the Second Lien Term Facilities. EY also stated that they would strongly caution against any attempt to commence a sales process in the current market environment, due to the uncertainty caused by COVID-19.
For all of these reasons, the Group wishes to extend the existing maturity dates of the Term Loan Facilities by approximately two years until September 2023 for the First Lien Term Facilities and until September 2024 for the Second Lien Term Facilities. That is the main purpose of the Schemes. Such an extension will allow the Group to pursue business and asset sales without the need to adopt an accelerated timetable. This should improve the ratings given to the Group's debt which in turn should provide a better opportunity (in normal market conditions) to repay or refinance the amounts outstanding under the RCF and the Term Loan Facilities in full at their revised maturity dates.
The lenders under the RCF are not subject to the Schemes and have unanimously agreed, outside the Schemes but conditionally upon the Schemes becoming effective, to grant a maturity extension of the RCF.
The restructuring proposal and the Lock-up Agreement
The Group has engaged with its lenders under the Credit Agreements since early 2020. A number of lenders formed an “Ad Hoc Group” to negotiate the terms of a restructuring transaction, including a maturity extension and a number of other changes to the finance documents. The lenders within the Ad Hoc Group own (by value) more than 50% of the debt under the First Lien Term Facilities and approximately 90% of the debt under the Second Lien Term Facilities.
Following a communication the previous day to the Scheme Creditors, on 9 April 2020 the members of the Ad Hoc Group entered into a lock-up agreement with Holdco and various other Group companies (the “Lock-Up Agreement”). Under the Lock-Up Agreement, the signatories committed to supporting the restructuring transaction, the commercial terms of which were set out in therein, and agreed to take any necessary steps to implement the transaction. The Lock-Up Agreement has been substantively amended on various dates since 9 April 2020, but all lenders (whether or not they form part of the Ad Hoc Group) have been eligible to accede to the Lock-Up Agreement since 9 April 2020 and remain able to do so.
Amendment to the Credit Agreements and the ICA
As a preliminary to the implementation of the restructuring transaction referred to in the Lock-Up Agreement, steps were taken to amend the Credit Agreements and the ICA. Those agreements were originally governed by New York law and subject to the jurisdiction of the New York court. The Credit Agreements and the ICA include a contractual regime whereby certain amendments can be made with the consent of a bare majority of lenders (by value).
On 22 May 2020, the Group requested the consent of lenders under the First Lien Credit Agreement and the Second Lien Credit Agreement to change the governing law of the Credit Agreements and the ICA to English law and to replace the existing jurisdiction clause with a new clause conferring exclusive jurisdiction on the English court. The Group expressly disclosed that the purpose of these amendments was to establish a sufficient connection with England for the purposes of implementing the restructuring transaction by way of the Schemes.
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