Distressed Borrowers Seek Creative Lending to Survive Virus 
2020-03-31 13:21:26.195 GMT

By Katie Linsell
(Bloomberg) — When PizzaExpress secured a new loan from a
private credit firm earlier this month, it was forging a path
other cash-strapped companies will likely follow in the era of
coronavirus.
The distressed U.K. restaurant chain obtained 70 million
pounds ($86 million) from HPS Investment Partners in mid-March.
As a super senior loan, it will be repaid first in the event of
a collapse. Now other companies are looking for investors
willing to provide emergency cash at the most secure part of the
debt stack.
Where contracts allow, this kind of borrowing could spell
the difference between companies’ failure or survival.
Ordinarily, existing lenders wouldn’t accept having debt placed
ahead of them but in distressed or emergency situations they’re
more likely to consider it favorably, according to Matthew Cox,
a partner at law firm Baker & McKenzie in London.
“We expect to see more and more of this kind of lending
taking place in the coming weeks,” he said, adding that his
clients are “actively looking” at super senior opportunities.
Direct lending funds are looking to step into these
situations where previously it would have been banks, he said.
“A trend is developing where alternative credit providers
are plugging the gap as they did in some ways after the
financial crisis,” said Cox.

Likely Candidates

On Tuesday cruise line operator Carnival Corp., which is
forecasting a loss and has suspended its dividend, offered
investors first-priority claim on its assets as it seeks to
raise $3 billion of cash via senior secured notes.
Borrowers including French equipment rental firm Loxam and
Spanish gaming company Cirsa, both with bonds quoted at
distressed levels, are potential candidates for super senior
lending, according to analysts at Spread Research and
CreditSights respectively. Online travel agent eDreams Odigeo
SA, whose notes are quoted around 50 cents on the euro, should
also consider this kind of financing to address liquidity
issues, say researchers at Covenant Review.
A spokesman for Loxam said the company doesn’t intend to
seek a super senior loan. Cirsa declined to comment.
“This is clearly an option that is available to us,” said a
spokesman for eDreams, adding that the company has drawn 170
million euros ($187 million) from its senior revolving credit
facility. “This is one of the strengths of our balance sheet.”
Private equity owners and distressed debt funds are also
natural providers of this kind of financing. KKR Credit Advisors
provided a 50 million-euro senior secured loan to vending
machine firm Selecta Group last week that will be repaid ahead
of the company’s notes in the event of an enforcement
“We are urgently working with clients to find creative
solutions,” said Korey Fevzi, partner at law firm Shearman &
Sterling in London. Lenders will likely only provide liquidity
if they are given a senior ranking, he said.
However, while some investors are studying opportunities to
lend, others are trying to work out if debt is going to be
placed above them in the structure, denting the value of their
holdings. Subscribers to research firm Covenant Review are
increasingly asking about ways that borrowers can raise this
funding.
Investor lobby group European Leveraged Finance Association
is hosting webinars to show its members how to find out whether
high-yield bond covenants allow companies to issue this kind of
debt.

Receivable Financing

Another corner of safe lending that will see a rise in
activity is receivable financing, according to John Miesner, a
director on KPMG’s debt advisory team. This kind of funding is
attractive to lenders because they receive corporate invoices as
collateral for loans, providing alternative recourse in the
event of insolvency.
“Lenders will look to structure loans in this way to
improve a business’s borrowing capacity,” he said.