Three PBG Group companies file for insolvency with arrangement option to protect their employees, creditors and shareholders
Three PBG Group companies file for insolvency with arrangement option to protect their employees, creditors and shareholders
- Three PBG Group companies, i.e. PBG, Hydrobudowa Polska and APRIVIA, resolved to file insolvency petitions to protect the companies, as well as the interests of all their creditors and employees.
- The decision was prompted by difficult liquidity positions of the companies resulting from the execution of capital-intensive road construction projects, only partial settlement of the contract for the construction of the National Stadium in Warsaw and the protracting negotiations with the financing banks.
- The banks put hold on the companies' accounts until security instruments required under the standstill agreement are executed, which poses a major obstacle in contract delivery.
- PBG will strive to satisfy the considerable majority of claims by raising funds through such measures as a bond issue.
In an attempt to protect its employees and interests of all creditors, including business partners, bondholders and financing banks, PBG resolved to file a petition for insolvency with arrangement option with the District Court in Poznań–Stare Miasto. The decision was also made to enable the companies to carry on their operations. The immediate cause of the decision were protracting negotiations with banks concerning financing, i.e. a bridge facility to finance the operations until PBG raises funds from the issue of bonds convertible into shares, and to refinance the acquisition of RAFAKO shares.
The difficult liquidity position of the Group is also attributable to the withdrawal of one of the financing banks from its commitment to finance the acquisition of RAFAKO, and the need to finance the transaction using the Group's own funds and drawing on available credit lines. Furthermore, the Group's problems stem from the execution by subsidiaries, that is Hydrobudowa Polska and APRIVIA, of contracts for construction of roads, including sections of the A1 and A4 motorways. Road construction contracts require significant working capital. Moreover, due to changing market conditions, especially increase in the prices of materials, the road construction projects have become unprofitable. The Group's financial distress also stems from its involvement in the construction of the National Stadium in Warsaw, and in particular the related sureties advanced by the three companies, as well as joint and several liability of the general contractor and consortium members assumed under the contracts. The significant exposure to these projects (the total value of the contracts exceeds PLN 5bn, VAT-exclusive) exacerbated the Group's liquidity problems and disrupted the continuity of its operations. The challenging conditions in the Polish construction sector are evidenced by the growing number of construction companies filing for insolvency. According to Euler Hermes, construction companies accounted for about 30% of nearly 300 Polish companies that went bankrupt in the period January-April 2012.
If the filed petitions are admitted by the court, this will stabilise the situation within the Group and alleviate the impact of liquidity loss by enabling the companies to progress with the ongoing projects. Our objective is to bring the current projects to timely completion and settlement. Also, PBG has sights set on certain new construction projects, including projects undertaken through RAFAKO, a subsidiary. To note, our insolvency decision has no impact on the subsidiary's operations.
An agreement with the financing banks, a first step towards securing a bridge loan, was signed on May 14th of this year. The agreement provided that the banks' credit committees would make the lending decision by May 18th and disburse the funds by May 25th. On June 1st, the banks agreed to provide the financing but on the terms whose fulfillment depends on external financial institutions and the time for their fulfillment does not leave room for providing security for repayment of current liabilities and proper completion of the running contracts.
The banks put hold on the companies' accounts until security instruments required under the standstill agreement are executed, which poses a major obstacle in contract delivery. Moreover, as no comprehensive financing package or debt restructuring deal has been guaranteed, accepting the terms proposed by the banks in respect of asset-backed security interests would undermine the principle of equal treatment of all creditors, notably our business partners and bondholders.“ The fundamental driver of our decision to file the insolvency petitions was the best interest of all our creditors, employees and business partners. Accepting the terms put forward by the banks would be detrimental to PBG and the other creditors. It would lead to unequal treatment of creditors, thus adversely affecting our subcontractors, suppliers and bondholders,“ said Jerzy Wiśniewski, President of the PBG Management Board. "The path the Management Board intends to pursue is the issue of bonds convertible into shares and repayment of claims to the largest extent possible."
PBG will propose two scenarios for the arrangement. PBG's scenario A provides for repayment of 100% of the nominal amount of claims of those creditors, whose total claims do not exceed PLN 100 thousand. Further, the company will repay 80% of the nominal amount of claims of those creditors, whose total claims fall within the range from PLN 100 thousand to PLN 1m, and 69% of the nominal amount of claims of the creditors whose total claims exceed PLN 1m. Scenario B provides for satisfaction of creditors' claims in line with scenario A, with an additional option (available for creditors with claims above PLN 1m) of conversion of debt to equity, i.e. PBG shares, at a price of PLN 40 per share, up to 12% of documented claims. The conversion of debt into shares will be effected within one year from the day on which the decision to approve the arrangement becomes final. The Management Board expects that priority will be given to the first two groups of creditors, whose claims do not exceed PLN 1m.
Hydrobudowa Polska will also propose two scenarios for the arrangement. Scenario A provides for repayment of 100% of the nominal amount of claims of those creditors, whose total claims do not exceed PLN 10 thousand. Further, the company will repay 80% of the nominal amount of claims of those creditors, whose total claims fall within the range from PLN 10 thousand to PLN 1m, and 44% of the nominal amount of claims of the creditors whose total claims exceed PLN 1m. Scenario B provides for satisfaction of creditors' claims in line with scenario A, with an additional option (available for creditors with claims above PLN 1m) of conversion of debt to equity, i.e. Hydrobudowa Polska shares, at a price of PLN 1 per share, up to 5% of documented claims. The conversion of debt into shares will be effected within one year from the day on which the decision to approve the arrangement becomes final.
The Management Board of Aprivia will present details of its arrangement proposal at a later date.
The decision to simultaneously file for insolvency was prompted by the fact that the companies (PBG, Hydrobudowa Polska i APRIVIA) have provided cross guarantees to secure the repayment of bank loans and trade creditors, and assumed joint and several liability under consortium-delivered major contracts.