Victoria's two thresholds, and what a holdout is worth

Victoria plc has been refinancing its €166.6 million 3.75% senior secured notes due March 2028. Three announcements between July 8th and 23rd changed what a holder who refused it would receive.

On July 8th the company announced a binding Transaction Support Agreement with Koch - KED Victoria Holdings and Wood River Capital - and holders of roughly two thirds of the 2028 notes. On July 21st it confirmed accessions above 75%, the threshold for implementation by scheme of arrangement under Part 26 of the Companies Act 2006. Then on July 23rd it confirmed accessions above 90%, the threshold for implementation by consent solicitation together with a court-approved capital reduction.

Between those two announcements was HSBC, reported on July 21st as not yet signed up to the deal and two days later as having acceded. Its accession is what carried the transaction past 90%.

Two routes to the same transaction, but the difference between them is stark for a holder who hasn't acceded.

The July 8th announcement stated that if the transaction were consummated via a consent solicitation, non-consenting noteholders "are expected to have their 2028 SSNs written down to zero and released", and would not receive any consideration. Under the scheme route they'd be bound by a court-sanctioned compromise instead, with a class vote and the court's fairness scrutiny attached.

So the 15 points between 75% and 90% weren't a question of execution speed and cost, which is how the company framed the benefit. They decide whether the holder who says no keeps anything at all, and the holder who acceded last is the one whose accession removed the court process that would have protected anyone still outside.

Consenting holders receive €750 of new Second Priority Notes due 2031 for each €1,000 of 2028 notes, up to €125 million, plus around 34.8 million new ordinary shares. The agreement carries a £3 million Early Bird Fee for acceding within 10 business days and a £1.5 million Work Fee for certain steering committee members, both conditional on compliance through to closing and neither payable to non-consenting holders. The new notes pay 12% PIK against the 3.75% cash they replace.

For a credit professional the situation highlights important questions about what's in the documentation:

• What is on your reserved matters list, and what threshold applies to each item - a majority, 75%, 90%, or each affected holder?
• What sits outside that list: can guarantees or security be released at a lower threshold, without a payment term being touched?
• Is there an accession threshold ladder in the support agreement, and do you know where the rungs are before you're asked to sign?
• Is the fee you're offered conditional on compliance through to closing, so that stepping away later forfeits it?

The significance of the transaction extends beyond this carpet manufacturer. The two-rung ladder is a structuring choice we will no doubt see again. A holder weighing accession isn't deciding whether the terms are fair; they're predicting what everyone else will do, against an Early Bird clock and a write-down at the top of the ladder.

Whether the ladder can reach you at all is decided in the contract's reserved matters provision - the clause most lenders pay too little attention to at issuance and all of them read in a restructuring.