Safari Holding Verwaltungs GmbH
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 04 April 2022 |
| Neutral Citation | [2022] EWHC 781 (Ch) |
| Docket Number | Case No: CR-2022-000533 |
| Court | Chancery Division |
[2022] EWHC 781 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
Royal Courts of Justice
Rolls Building
Fetter Lane
London EC4A 1NL
Mr Justice Adam Johnson
Case No: CR-2022-000533
Tom Smith QC and William Willson (instructed by Latham & Watkins (London) LLP) for the Company
Hearing date: 30 March 2022
Approved Judgment
This judgment was handed down remotely by circulation to the parties' representatives by email and released to BAILII and the National Archives. The date and time for hand-down is deemed to be 10am on Monday 4 April 2022
Introduction
On 30 March 2022, I heard an application by Safari Holding Verwaltungs GmbH (the “ Company”) for an Order under s.896 Companies Act 2006 convening a meeting of creditors for the purpose of approving a proposed scheme of arrangement (the “ Scheme”).
At the conclusion of the hearing, I indicated that I would make the Order sought but would give reasons separately in writing. These are those reasons.
The Company is incorporated in Germany. It operates a gaming arcade business in Germany and the Netherlands. The evidence is that its operations and financial performance have been severely impacted by a combination of two factors, namely (1) the COVID-19 pandemic, and (2) regulatory changes in Germany which have had the effect of curtailing gaming and restricting the operation of arcades.
The Company is a wholly-owned direct subsidiary of Safari Beteiligungs GmbH (the “ Parent”), which is also a German limited liability company.
The Parent is wholly owned by Big Five Mid S.A. (“ Big Five”), a public limited liability company ( société anonyme) incorporated under the laws of the Grand Duchy of Luxembourg. In turn, the shares in Big Five are held ultimately by four funds referred to as the “ Existing Sponsors”.
Together with the Parent and its subsidiaries, the Company is part of a group of companies (the “ Group”) which includes other operating companies such as Löwen Play GmbH and Löwen Play Grundstücks GmbH.
The Company's Indebtedness
The Company has a number of different sources of indebtedness, but its principal indebtedness is as issuer of certain notes (the “ Existing Notes”), being €350 million 5.375% fixed rate senior secured notes due 30 November 2022. The Existing Notes are issued pursuant to an indenture dated 15 December 2017 (the “ Existing Notes Indenture”). It is this debt which is sought to be compromised by virtue of the Scheme, and the holders of Existing Notes (the “ Existing Noteholders”) are therefore the Scheme Creditors.
The Existing Notes benefit from English law guarantees (the “ Guarantees”) entered into by the Parent, the Company, Löwen Play GmbH and Löwen Play Grundstücks GmbH (the “ Obligors”). They also benefit from security over (a) shares in the Obligors, granted by their relevant holding companies and (b) receivables owed to Big Five by the Parent under a shareholder loan and receivables owed to the Obligors under intercompany loans (the “ Shared Collateral”).
Although the Existing Notes Indenture, the Existing Notes and the Guarantees originally provided for New York law and jurisdiction, there has been a recent amendment, the broad effect of which is that:
i) subject to a point which I will mention below at [58], the governing law has been changed from the law of the State of New York to the law of England and Wales; and
ii) the jurisdiction provisions have changed so as to confer non-exclusive jurisdiction on the Courts of England and Wales.
The Company also has the benefit of a credit facility (the “ Revolving Credit Facility”) originally entered into in 2017. On 22 March 2022, the amount outstanding under the Revolving Credit Facility was €40,250,556 (comprising outstanding principal and accrued interest). The Revolving Credit Facility was amended on 26 August 2021 as a result of which its maturity date was extended to 31 October 2022.
Pursuant to the terms of an English law intercreditor agreement dated 15 December 2017, the lenders under the Revolving Credit Facility are entitled to receive the proceeds from any enforcement of the Shared Collateral in priority to the holders of the Existing Notes.
The Revolving Credit Facility is not directly affected by the Scheme, but is affected indirectly in the sense that one of the purposes of the Scheme is to raise new funds which will allow the Revolving Credit Facility to be repaid.
The Proposed Restructuring
The immediate financial pressure on the Company comes about because of the factors I have already mentioned which have impacted its operations and financial performance, together with the fact that the Revolving Credit Facility will terminate on 31 October 2022 and the Existing Notes mature on 30 November 2022.
Anticipating this confluence of events, the Company began to take steps during 2021 to effect an overall restructuring of its indebtedness (the “ Restructuring”), of which the present Scheme forms part. The steps taken by the Company included discussions with an ad hoc committee of the Existing Noteholders (the “ Ad Hoc Committee”), and on 23 December 2021 the Company entered into a Lock-Up Agreement with certain Existing Noteholders (including all the members of the Ad Hoc Committee) to facilitate the implementation of the Restructuring. The Lock-Up Agreement was amended on 26 January 2022. Existing Noteholders executing the Lock-Up Agreement are entitled to a Consent Fee, described further below at [46].
As at the present date, the Lock-Up Agreement (and the amendments to it) have been signed or acceded to by Existing Noteholders representing 98.53% of the Existing Notes. It remains open for signature by further Existing Noteholders, and will continue to remain open until the Restructuring Effective Date (as defined), which is expected to be after the proposed meeting of Scheme Creditors I am invited to convene.
It was as part of this process of engagement with creditors that the governing law and jurisdiction provisions relating to the Existing Notes were amended, in the manner I have described above. The relevant consent solicitation was approved by 99.55% of the Existing Noteholders and the amendments were consequently given effect in February 2022.
I should say I am also informed that no Scheme Creditor has objected to the Scheme.
I should now briefly describe the Restructuring and the position of the Scheme within it.
The aims of the Restructuring include the deleveraging of the Company's balance sheet, the provision of new money facilities to the Group, and the extension of the Group's debt maturities.
The Company's evidence is that absent the Restructuring, the Obligors (including the Company) would have no choice but to file for entry into insolvency proceedings under German law. PwC have produced a report assessing the effect of any such insolvency process (referred to as the “ Counterfactual Scenario”), which they estimate would lead to a recovery for the Scheme Creditors of between 48.5% (low case) to 63.7% (high case).
In very broad terms what is intended is that: (1) the Existing Notes will be cancelled and all the Existing Noteholders will receive instead two replacement sets of Notes, on different terms and with different maturity dates – this will ease the immediate pressure; (2) Existing Noteholders will be given the option of subscribing for an entirely fresh set of Notes – this will raise new money which will assist in allowing the Revolving Credit Facility to be paid off; and (3) Existing Noteholders will also acquire a majority (95%) shareholding in the Parent (and therefore in the Company), by means of a new shareholding structure.
To amplify that description a little, the Restructuring involves the following broad steps.
To begin with, the shares in the Parent will be sold to a new special purpose vehicle incorporated in Germany (“ New AcquiCo”), which is ultimately owned by a special purpose holding vehicle incorporated in Luxembourg (“ New HoldCo”).
As to the treatment of the Existing Notes, the following is proposed:
i) The Existing Notes will be cancelled in full and the claims of the Existing Noteholders against the Obligors and all related liabilities, including the Guarantees and the Shared Collateral, insofar as it relates to the Existing Notes, will be released in exchange for the issuance of €220 million (plus the total amount of any accrued and unpaid interest on the Existing Notes) of 7.75% senior secured notes due 15 December 2025 to be issued by the Company to the Existing Noteholders on a pro rata basis relative to the principal amount of Existing Notes held by the Existing Noteholders as at the Voting Record Time (the “ Reinstated SSNs”). The Reinstated SSNs allow the Company, subject to certain conditions (including liquidity) to elect, in respect of the 15 June 2022, 15 December 2022 and 15 June 2023 interest payment dates to pay a combination of 4% cash interest and 4% in-kind interest instead of 7.75% cash interest.
ii) Some €130 million of 12.5% limited recourse Payment in Kind (“ PIK”) notes due 30 September 2026 will be issued by a wholly owned subsidiary of New HoldCo incorporated in Luxembourg (“ New MidCo”) on a pro rata basis relative to the principal amount of Existing Notes among the Existing Noteholders (the “ New MidCo PIK Notes”) on terms including that:
a) Interest will be payable semi-annually in arrears at a rate of 0.5% in cash and 12% in kind.
b) The New MicCo PIK Notes will be structurally subordinated to the Reinstated SSNs and New SSNs and will not benefit from guarantees or other credit support from any subsidiaries of New MidCo.
iii)...
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