VARTA’s Schuldschein lenders are expected to take a roughly 90% haircut on their original EUR 250m loan under a restructuring proposal announced by the German battery maker, two sources familiar with the situation said.

The listed company announced on 17 August that it has reached an agreement with its financial creditors and strategic investors to cut current liabilities by EUR 285m to EUR 200m from EUR 458m.

Under the proposal, owner Michael Tojner and German automaker Porsche would become the company’s majority shareholders after providing EUR 60m in new money via a capital increase – of which EUR 40m will be in cash.

A further EUR 60m in new funds would be provided through a senior secured loan from existing lenders, who will also participate in the potential equity upside via a virtual holding.

Banks and funds, including Blantyre, BlueBay and Hayfin, who bought into VARTA’s RCF and term loan debt earlier this year are likely to receive a smaller haircut than the Schuldscheins under the current proposal and could improve their recoveries further if they also participate in the new debt, the first and the second source said.

While the RCF, term loan and Schuldschein debt were originally all ranked pari passu, guarantees pledged to revolver and term loans following VARTA’s restructuring last year may lead to better recovery rates for the RCF and TL lenders, the first and a third source said.

The company’s current debt stack includes a EUR 135m fully drawn revolving credit facility, a EUR 100m term loan and EUR 250m under a promissory note (Schuldschein) facility, all of which mature in December 2026.

Schuldschein and shareholder resistance

To implement the debt restructuring via StaRUG proceedings in Stuttgart, VARTA is looking at having as many as seven classes of stakeholders, grouping the RCF and term loan lenders into one class, with the Schuldschein holders in a separate class, as reported.

The Schuldschein debt is expected to be crammed down in the in-court proceedings, two of the sources said.

Schuldschein lenders, which reportedly include hedge fund Whitebox Advisors, had put forth a separate proposal which would have given all shareholders the right to participate in a capital increase in addition to a new debt component, the second source noted.

The Schuldschein lenders, advised by Perella Weinberg Partners and Dentons, are weighing their legal options after their proposal failed to be considered by the company’s management, one of the sources said.

The Schuldschein-led proposal may have been sidelined as the shareholder-led and non-par lender proposals were more closely aligned with the IDW S6-compliant expert opinion which was supplied by AuxilPartner, another source added. Talks had been ongoing to bridge the differences between the latter two proposals, as reported.

Shareholders whose share capital is expected to be reduced to zero under the current proposal are also exploring legal action, according to a separate source and press reports. VARTA shares have plunged nearly 90% and are trading at EUR 1.90 today (21 August) to give it a market capitalisation of EUR 80m.

VARTA, advised by Rothschild and DLA Piper alongside Grub Brugger, has yet to formally file its restructuring proposal to the court, the sources said. The local court in Stuttgart appointed Dietmar Haffa from law firm Schultze & Braun to the case.

Bank lenders are being advised by Noerr and FTI Consulting while the funds were advised by Houlihan Lokey and Freshfields.

Meanwhile, Porsche’s involvement in the proposal centres on maintaining its interests in VARTA’s V4Drive Battery business, which are large-format lithium-ion round cells which the German carmaker needs for some of its models. VARTA already secured around EUR 20m in equity from an intellectual property sale to a joint venture in the battery business with the German carmaker, as reported.

Porsche, which has a market cap of roughly EUR 32bn, roped in Teneo subsidiary Herter & Co and law firm Flick Gocke Schaumburg, to advise on the negotiations with VARTA.

Tojner is being advised by Clifford Chance and auditor Dr. Fischer, Wilhelm & Partner (FWP).

VARTA was hit by a cyberattack in February and subsequently postponed its FY23 report barely a year after the company emerged from an out-of-court restructuring that extended maturities on its loans until December 2026.

VARTA declined to comment.