A London High Court judge today (17 November) sanctioned two interconditional restructuring plans proposed by two subsidiaries of customer relationship management business Atento SA.

Mr Justice Miles agreed to put his approval seal under the Part 26A applications, aimed at saving the group from collapsing into liquidation amid liquidity pressures, after being told that the plans had secured unanimous or above-99% support of the relevant creditors at plan meetings.

The plans have been put forward by Atento UK Limited (Atento UK) and Atento Luxco 1 (AL1). The company is facing a liquidity cliff edge and expects a cash shortfall by the week ending 1 December 2023.

An ad hoc group (the AHG) of creditors holding the bulk of the debt subject to the plans supported Atento’s proposal.

The plan companies were represented by Daniel Bayfield KC and Matthew Abraham (both of South Square), instructed by Sidley Austin. The AHG was represented by David Allison KC (also of South Square). The AHG is advised by Rothschild as financial adviser and Hogan Lovells as legal adviser.

Today’s hearing follows a convening hearing on 20 October and creditor meetings held on Monday (13 November). At the meetings, the plan creditors were divided into eight separate classes, i.e. four for each of the two plans. The outcome of the votes for both plan companies were identical.  The creditor classes were constituted as per below:

Class A: Existing 2025 Noteholders; Class B: New Money 2025 Noteholders; Class C: New Junior Lien Noteholders; Class D: swap providers and 2026 noteholders.

In the first three classes (A, B, and C), the plans were approved by unanimous support. In Class D, the plans garnered the positive vote of 99.55% of the creditors by value. In terms of numerosity, of the 227 voting Class D creditors, 221 voted in favour, while six creditors who together represented 0.45% of the votes by value, cast a negative vote.

Class D turnout was lower than the other classes, but still stood at 59.64% by value. The Class D constituency included a much larger eligible voting creditors. In the three other classes, the number of voting creditors ranged between 15 (Class A) and 21 (Class B and Class C).

Bayfield KC noted that none of the Class D creditors who voted against the plans went on to raise an issue with the sanction of the plans or attended the sanction hearing.

The debt pile

Atento provides customer relationship management and business process outsourcing services. It employs approximately 113,000 people and operates in 17 countries, including Brazil, Spain, Mexico, Guatemala, El Salvador, Puerto Rico, the USA, Argentina, Colombia, Uruguay, Peru and Chile. The group’s clients are predominantly multinational companies in the telecommunications, banking and financial services, healthcare, retail and public administration sectors, according to its skeleton argument.

Atento has faced challenges arising from the sector in which it operates, including a highly competitive industry consisting of low-cost local competitors and larger global competitors, disruption from technology adoption across the sector and inflationary cost pressures, Bayfield KC said in his skeleton argument. In addition, the group has also experienced certain challenges which are specific to its business, including a cyberattack in October 2021 which led to a loss of revenue of USD 34.8m and an increase in operational expenses and penalties of USD 11.3m for the financial year ending 31 December 2021.

Also, negative movements in the USD-BRL exchange rates and an increase in Brazil’s CDI rate generated a material mark-to-market liability on AL1’s cross-currency swap agreements. This caused material pressure on the group’s margins and cash generation as well as its ability to comply with net leverage and debt service covenants ahead of its payment obligations due in February 2023.

An interim financing raised by the Existing 2025 Notes and the New Money 2025 Notes is due to run out as early as next week, and Atento now expects to have a liquidity position of negative USD 7.4m by the week ending 1 December 2023, according to a cash flow report produced by FTI.

The financial liabilities subject to the plans are as follows:

(a) USD 500m 8% senior secured 2026 notes issued by the AL1 in February 2021 and guaranteed by subsidiary guarantors including Atento UK.

(b) USD 39.6m 20% senior secured 2025 notes (the Existing 2025 Notes) issued by AL1 in February 2023 and guaranteed by subsidiary guarantors including Atento UK.

(c) USD 37m 20% senior secured 2025 notes issued by AL1 on 30 June 2023 and guaranteed by subsidiary guarantors including Atento UK (the New Money 2025 Notes).

(d) USD 66.18m 20% junior secured 2025 notes (the New Junior Lien Notes) issued by AL1 on 30 June 2023 and guaranteed by subsidiary guarantors including Atento UK.

(e) Certain hedging arrangements entered into by AL1, in respect of which Atento UK has assumed liability for as a primary obligor with Goldman Sachs International, Nomura International Plc, and Morgan Stanley Capital Services LLC (all pursuant to 2002 ISDA Master Agreements).

All five debt categories above are governed by English law and have dispute resolution clauses in favour of the courts of England and Wales.

Also, each of the 2026 notes and the swap agreements are subject to an English law-governed intercreditor agreement, while each of the Existing 2025 Notes, the New Money 2025 Notes and the New Junior Lien Notes are subject to another English law governed intercreditor agreement dated 30 June 2023 (the New Intercreditor Agreement).

In addition to the plan debt, Atento is also a borrower under a super senior revolving credit facility (the SSRCF). The group and the SSRCF lender have agreed a settlement pursuant to which the SSRCF and the associated guarantees will be terminated and discharged in full in exchange for a cash sum of USD 1.8m to be paid on the Restructuring Effective Date.

The plans

Prior to their launch, the plans already enjoyed a high degree of support among the creditor base, expressed via signing up to a restructuring support agreement (the RSA). At the date of the convening hearing, support level among the holders of the Existing 2025 Notes was around 76%, while 100% of the holders of the New Money 2025 Notes as well as the New Junior Lien Notes had also signed up. Support level among the swap providers and the holders of the 2026 Notes was around 64% and around 52%, respectively. In total, holders of around 54% of the plan debt had signed up to the RSA.

Under the plans, the 2026 notes and the swaps will be extinguished in return for an equity compensation (on pro rata basis) equivalent to 2% of the group’s ordinary shares. Holders of the New Junior Lien Notes will see their claims discharged in exchange for a 0.3% equity stake.

The Existing 2025 Noteholders and the New Money 2025 Noteholders will see their existing collateral package extended to include all available assets of the group.

Also, the Existing 2025 Notes’ maturity will be extended by three months, while the maturity date of the New Money 2025 Notes will be extended by six months.

The restructuring also includes injection of circa USD 76m under an “Exit Financing”. The plan creditors will provide USD 58m of the new monies, and a further USD 18m will be provided by an affiliate of a plan creditor as part of the wider restructuring.

The USD 58m tranche (Tranche A) will be provided in exchange for issuance of Class A Preferred Shares in AL1.

Of the USD 58m that is to be injected under Tranche A, USD 28m will be provided by the New Money 2025 noteholders, while the remaining USD 30m will be chipped in by swap creditors and holders of the 2026 notes.

The alternative

Atento’s advisors have identified a group-wide liquidation as the most likely alternative to the plans, given that the Exit Financing will not be provided to save the company from running out of cash. In this scenario, the swap creditors, the 2026 noteholders and holders of the New Junior Lien Notes are all out of the money and therefore would stand to make no recoveries, according to the company’s evidence.

Based on the valuation of AL1 set out in a Valuation Report, following the sanction of the plans, the likely returns to each of the plan creditors is estimated to be:

(a) Existing 2025 Noteholders (Class A): 100%; (b) New Money 2025 Noteholders (Class B): 100% (c) New Junior Lien Noteholders (Class C): 0.5% – 1.0% (d) swap providers (Class D): 0.4% – 0.8% (e) 2026 noteholders (Class D): 0.4% – 0.8%.

These numbers compare favourably to the likely returns in a liquidation. Based on Alvarez & Marsal’s analysis, the likely returns in the relevant alternative are estimated as follows:

(a) Existing 2025 Noteholders (Class A): 42.7% – 86.2% (b) New Money 2025 Noteholders (Class B): 9.5% – 19.5% (c) New Junior Lien Noteholders (Class C): 0% (d) swap providers (Class D): 0% (e) 2026 noteholders (Class D): 0%.

A&M have also prepared a report valuing AL1 following the sanction of the plans. They estimate the value of the ordinary equity in Al1 to be between USD 125m and USD 255m, with a midpoint of USD 190m.

With regards to the international effectiveness of the plans, especially in the key jurisdictions in which Atento operates or owns assets, the group has obtained expert evidence that it claims makes it clear that the plans “are likely to be given substantial effect in those jurisdictions”. To see a brief summary of each of these expert opinions, please see Annex A on pages 27-31 of the company’s skeleton argument for the sanction hearing.