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Bonds, exchanged bonds

Nobody likes restructuring but, when push comes to shove—or push comes to default—a popular approach is a debt-for-equity swap. Creditors receive a slice of equity in the business and, in exchange, waive their debt claims against said company.

In Europe's bond markets, an analysis by Debtwire shows that there have been 25 such swaps since January 2020—and the pandemic has definitely left its mark. Across sectors, 32% of bond-for-equity swaps were in transportation, an industry that has borne the brunt of the past 18 months. As well as claiming the highest number of situations, the sector made up over half of the aggregate debt of these 25 situations.

Oil & gas and retail—two other pandemic casualties—followed with 20% and 16% of these swaps, respectively.

Den of an equity

Across the sample, the average equitisation figure of the affected bonds was 76%, but with a sizeable spread.

On the lower end of the spectrum, vending machine business Selecta saw around 16% of its bonds converted to €241 million worth of equity. It's a surprisingly small swap size given the mass exodus of office workers and the attendant collapse in demand for daytime snacks.

At the other end of the spectrum, eight situations involved 100% equitisations of the affected bond debt. These include Valaris, Swissport, Prosafe, Floatel, Travelex, Intralot and Pacific Drilling, some of which are ongoing. With the exception of sports betting company Intralot, these big swappers are all linked to the travel and transport, and oil & gas industries.

A debt of latitude

In many markets, banks granted debt repayment moratoria as the pandemic escalated, essentially pausing repayments, giving their clients much needed breathing room in difficult times.

Our analysis shows that in 48% of bond-for-equity swaps, the company also implemented some sort of loan restructuring. Of those situations that also restructured their loans, 75% involved an amendment and extension of those loans.

These companies will no doubt be hoping that this extra time and a sustained recovery across Europe will see them through.