Extracting value from leveraged businesses—the case of McLaren and its bondholders

Extracting value from leveraged businesses—the case of McLaren and its bondholders

This article looks at the novel form of restructuring used for the McLaren Group which borrows some US restructuring techniques. Written by Lee Federman, Kay V Morley, Ewen J Scott, Alexander A Gendzier, Lewis H Grimm and Michael C Schneidereit of Jones Day.

In recent years, market participants have watched with interest from across the Atlantic as US out-of-court liability management and restructuring transactions moved material assets out of the creditors’ collateral pools, to enhance liquidity, to raise additional debt or to extend the maturity of existing debt. Many have wondered when these sort of transactions will reach European shores. 

That moment has now arrived.

Introduction

In the early days of the coronavirus (COVID-19) crisis, the UK-headquartered McLaren Group (McLaren or Group) faced a material liquidity shortfall. Having reportedly failed to obtain UK government funding, it sought to raise additional liquidity by transferring some of its real estate and classic car collection outside of its restricted group (Proposed Transaction). These assets previously secured McLaren’s obligations under its bonds, and some bondholders strongly contested that the Proposed Transaction breached the terms of the bond indenture. McLaren sought court approval for the Proposed Transaction, but the court never decided whether the Proposed Transaction was permitted. That being said, the issues in dispute are instructive and may foreshadow future differences of view among market participants in these situations.

 Existing financial arrangements

The Group’s main debt obligations prior to the Proposed Transaction were:

  •  a fully drawn £130m multi-borrower revolving credit facility dated 10 July 2017 (RCF), and
  • £370m 5% senior secured notes and $US 350m 5.75% senior secured notes, each due in 2022 and issued by McLaren Finance plc under an indenture dated 20 July 2017 (Notes)

The obligations of the RCF borrowers and the Notes issuer were guaranteed by various Group entities and were secured by assets that included McLaren’s collection of classic cars (Heritage Cars) and real estate at the Group’s Woking HQ (Properties) (together, ‘Security’). The Security was held by US Bank Trustees

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.