(Bloomberg) -- Swedish landlord SBB has launched a major overhaul of its debt structure as it prepares to fight a landmark litigation case against US hedge fund Fir Tree Partners in London next month.
Samhallsbyggnadsbolaget i Norden AB, as the company is officially known, is planning to issue at least €1.7 billion ($1.8 billion) of new bonds that existing noteholders can exchange with their current securities. The aim, in part, is to soften the potential impact of the legal challenge, which aims to force SBB to repay some of its debt early over an alleged breach of its bond covenants.
The new bonds will include a tweak to the debt term at the heart of the dispute, the consolidated coverage ratio, according to a statement Tuesday. Bondholders that agree to swap into these new, more structurally senior notes will therefore be more limited in their ability to challenge SBB on the alleged breach in the future.
In recent weeks, a growing number of funds, including Corbin Capital Partners and Hudson Bay Capital Management, have sent letters to SBB declaring that they also intend to seek repayment in connection with the covenant.
The exchange offer to noteholders aims to “take away some of the noise in the market,” Chief Executive Officer Leiv Synnes said in a phone interview. Big bondholders “have never raised any discussions about covenants,” he said.
So far, only funds holding a combined €128 million in SBB’s bonds have sent letters, on top of the initial €46 million for which Fir Tree has filed an acceleration notice. At the same time, that’s a fraction of SBB’s about €4.6 billion of outstanding bonds.
Still, the alleged covenant breach has been awkward for SBB, which is in the process of a major corporate revamp to raise fresh funds and pay down some of its debts. While so far the small number of funds calling for immediate repayment has limited the consequences of a court ruling in Fir Tree’s favor, there has always been a risk that a more significant number of investors join the fray.
The alleged breach took place in March 2023, as the landlord was still grappling with the impact of the rapid increase in interest rates. The heavily-indebted landlord became one of the most prominent victims of the real estate downturn, as property prices plunged and financing became scarcer.
Bondholders that choose to swap into the new notes will also benefit from being closer to SBB’s assets, as they will be issued by an intermediate holding company. The reworking of SBB’s corporate structure — which includes the establishment of an education-focused joint venture and a new residential unit — has meant that many of its assets have been moved under this company, it said.
SBB’s notes due in 2026 led gains after the announcement of the offer, rising 2 cents on the euro to 85.4 cents, according to data compiled by Bloomberg.
“We want to create a better bond structure together with noteholders,” Synnes said in the interview. SBB will also offer to buy back certain shorter-dated notes, providing liquidity to holders.
(Updates throughout with additional context.)
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