Container shipping company Hapag-Lloyd is set to seal its debt restructuring through a high yield bond, paving the way for German travel firm TUI AG to exit the business.
Hapag-Lloyd, the world's fifth-largest container shipper, is planning a refinancing package, approved by its board on Wednesday, that will allow it to repay part of the debt it owes to TUI.
The refinancing will leave TUI free to offload its stake – 43% now, but rising to almost 50% as debt is converted into equity — either through a sale or a flotation of the stake, according to people close to the matter.
Hapag-Lloyd is working on a $500 mln-equivalent high yield bond offering, which is being marketed to investors in Europe and the United States, and will also obtain a new revolving credit facility, TUI said.
As part of the agreement, Hapag-Lloyd will cancel a 1.2 bln euro ($1.6 bln) state loan guarantee it obtained to weather the global economic crisis, which pummelled demand for trade around the world.
Cutting its dependency on government funding also means the Hamburg-based company will be able to resume interest payments on its shareholder debt.
TUI, which also owns Europe's largest travel company, TUI Travel, said it would get about 65 mln euros of deferred interest next month.
RESTRUCTURING ENDING
Through proceeds of the high yield bond, TUI is likely to be repaid a 277 mln euro facility as part of about 1.3 bln euros it loaned to Hapag-Lloyd to help prop it up last year.
The bond will mark the last step in restructuring of Hapag-Lloyd's balance sheet and could materialise as early as next week, according to sources close to the deal.
"It's pretty much the last piece of a definitive restructuring," said one source. "It will put Hapag-Lloyd on a stable footing and mean it has no further capital needs."
Deutsche Bank, Citigroup, Credit Suisse, Goldman Sachs, JPMorgan and UniCredit are leading the bond, which will have five and seven year maturities.
Hapag-Lloyd was hit hard by the economic slump and posted a 700 mln euro underlying loss for 2009, which left it needing fresh investment from shareholders.
The Albert Ballin consortium — which includes German entrepreneur Llaus-Michael Kuehne and the city of Hamburg — own the rest of Hapag-Lloyd.
TUI ended up retaining a bigger stake than planned after a deal to sell a bigger holding to the Albert Ballin group was derailed by the financial crisis.
TUI has said it sees Hapag-Lloyd posting a profit this year, which has helped the company emerge from its restructuring.
As part of the refinancing plan, a 350 mln euro bond will be converted into Hapag-Lloyd equity at the end of the year, lifting TUI's stake, although it is expected to divest its stake shortly.
"We regard the refinancing as a preparation enabling TUI to sell its 43.3% stake in Hapag as soon as possible, if the price is OK," Merck Finck analyst Robert Greil said in a note.
TUI is preparing to float its stake as a first step in a strategic reshuffle that will lead to combining TUI and TUI Travel, sources told Reuters this month.
"TUI stays committed to maximising the value of its Hapag-Lloyd investment and to closely monitoring all options to exit the business," TUI said.
