Creditors Mizuho Bank and US hedge fund Centerbridge Partners have sold their debt in the M6 Toll to Macquarie Bank in a deal which blindsided the wider creditor committee and prompted IFM Investors to scamble to take a controlling stake in the asset.

Centerbridge Partners held 27% of the total debt against the asset, while Mizuho had 3-4%. IJGlobal understands that IFM has responded to Macquarie's move by signing to buy at least 67% of the debt, at a recovery rate for the sellers of 80.3%, though this deal has not yet settled. It is unclear at this stage what Macquarie Bank will do with that smaller 30-31% stake.

Macquarie's, IFM Investors' and M6 Toll’s spokespeople declined to comment. Centerbridge Partners did not respond to a request for comment.

The original auction

The UK’s M6 Toll road near Birmingham is operated through a concession company controlled by its creditors, following a debt-for-equity type restructuring in 2013 when Australia-listed Macquarie Atlas Roads (MQA) lost ownership of the asset.

Creditors hold a total of just over £1.8 billion ($2.25 billion) in debt in the M6 Toll.

A competitive auction process for 100% of the debt of the M6 Toll led by UBS with legal advice from Linklaters launched in September 2016, after a pause following the UK’s vote to leave the European Union. It ran throughout the second half of 2016 with final bids on 12 December. Abertis and IFM Investors submitted a final offer, while Egis and Semperian were another group still in at the final stage. A CP2-led group was in the final round, but decided late on not to submit a final binding offer.

But the auction generated a final price deemed too low for the creditors to accept. They would have made a 73-74% recovery on their debt. 

That process was kept open, and IFM and Abertis raised the bar and improved their offer, which was a fully-banked proposition.

Too low to accept

Around this stage IJGlobal understands there was discord among the creditor committee. Most would have sold at north of 75% recovery, except for Centerbridge with its 27% of the total debt (around £500 million). As 75% creditor approval was the minimum required to sell the company, Centerbridge was able to play a blocking card.

Other creditors with sizeable stakes are: Commerzbank, Novo Banco, Credit Agricole CIB, BayernLB, Mizuho, Angelo, Gordon & Co. and Strategic Value Partners.

Without a satisfactory sale price, the creditor club began to look at refinancing options as an alternative to a sale, including using a bond issuance to take out around £1 billion of debt.

Macquarie's late entry

In the meantime however, after the sale process was canned, Macquarie Bank had approached the creditors with an indicative offer to buy the asset, requesting an exclusivity period in which to arrange financing.

Given that MQA remains manager of the road, Macquarie was originally asked not to bid so as not to deter other bidders.

All of a sudden Macquarie Bank and the IFM/Abertis group looked in direct competition, but then it emerged that IFM was going it alone.

On a weekend in mid-March, IFM and Macquarie were asked for best and final offers and both put in very close bids, representing recovery rates a few decimal points above 80% for sellers. IFM’s advantage was its fully committed financing package, and the assertion it could sign a deal within five days.

The hedge fund's bilateral negotiation

Centerbridge however, having blocked the earlier sale to IFM, had already held bilateral discussions with Macquarie Bank. IJGlobal understands they had discussed a deal whereby Macquarie Bank would have bought Centerbridge’s debt at a bit above 80% recovery, and Centerbridge would re-invest its proceeds to provide a mezzanine-type product.

But according to sources, returns on that mezzanine product were disputed, with Centerbridge seeking a high “off market” interest rate from Macquarie. In late February or early March that deal fell through. 

So it seemed… but hedge funds have different habits to banks.

The creditor committee was preparing to accept IFM’s offer and take the 80.3% recovery on that weekend in mid-March, and Centerbridge was invited to come back with their acceptance on it too, within 24 hours.

But blindsiding news came to the creditor committee that Centerbridge, along with Mizuho, had both sold to another buyer. The committee was uncertain as to the identity of the purchaser of that approximately 30% of the debt: the sale was via a broker.

Without that blocking share, they could not obtain the 75% approval threshold for a sale to IFM. They learned the buyer was in fact Macquarie Bank, presumably with a higher offer. 

IFM's scramble for a majority

IFM’s offer was still open, and with the committee of bank representatives in the room, they managed quickly to get about 54% of the creditors on-board to sell their debt to IFM. But that is not a clean controlling stake, because some lenders were not present at that time.

IFM had determined it would not proceed unless it could obtain a minimum of 67% of the total debt. If Macquarie Bank took even a 3% stake that could be missed.

It was a race to beat Macquarie Bank to it, and out of the ensuing scramble to reach the other lenders spread across the globe, IFM attained what it needed on Thursday last week and signed to buy 67% (at least) by Friday 31 March.

Settlement remains pending, IJGlobal heard from a source on 4 April.

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