Bondholders add to Ardagh's VNA acquisition woes


* Bondholders push back on Ardagh bond repayment request

* More clarity on buyer for glass units needed

* Sweetened offer for consent solicitation could be on cards

By Natalie Harrison

NEW YORK, Oct 23 (IFR) - Ardagh's battle toacquire Verallia North America (VNA) has hit another setbackafter investors declined to let the Irish packager postpone amandatory redemption of the bonds backing the deal.

Ardagh launched a consent solicitation on October 10, askingbondholders for an extra six months to close the acquisition ofVNA from France's Saint-Gobain, which US regulatorsare trying to block.

However, two sources said the company did not get themajority approval needed by the October 18 deadline, meaning itwill have repay the three bonds, totaling USD1.6billion-equivalent, if the acquisition does not close by January13.

The proposed amendment, in return for a fee, would haveextended the deadline to July 13, 2014 and given the companymore time to satisfy anti-trust authorities who are concernedthat the company will have too much dominance in the US$5billion US market for glass containers.

The VNA deal would give Ardagh and industry leaderOwens-Illinois over 75% of the US market for beer and liquorbottles between them. However, it is seen as a vital step inArdagh's plans to deleverage via an initial public offering.

"Ardagh does not generate much free cash flow, so anyorganic deleveraging would be very slow," said CreditSightsanalyst Rahul Gandhi.

"The only effective option, therefore, would be to do an IPOand use those proceeds to pay down debt." He said net leveragewas 5.9 times Ebitda pro forma for the VNA acquisition.

To appease regulators, Ardagh offered to sell four US plantsin September.

"The fact that the company is willing to sell these plantsshows you how much they want this VNA acquisition," said Gandhi.

The offer did not satisfy regulators, who said they did nothave enough time to undertake due diligence before a hearing onthe merger that is expected to begin in December.

"Ardagh has said that it will find a single buyer for theassets it will spin off, but has given no indication of who thisbuyer is," said Gandhi.

"If it is forced to sell them at a low valuation, that isnot good from a credit standpoint."


Bondholders were offered a US$10 fee for each US$1,000principal amount of the dollar notes, and EUR10 for eachEUR1,000 principal of the euro note.

One investor who owns the Ardagh bonds said that was notcompelling enough, considering that the bonds haveunderperformed since their launch in January - partly due to asell-off in low coupon bonds on expectations that interest rateswill move higher.

"The general view of bondholders was: why not just get paidout at 101 in January if the VNA deal does not go through?" saidthe investor.

If Ardagh does not get the green light by January 13, itwill have to repay the senior secured 5% EUR250m 2022s and4.875% USD420m 2022s in full, as well as USD700m of 7% USD850m2020 senior notes, at 101 plus accrued and unpaid interest.

The euro bonds are currently bid at 98.5, but were as low as96 at the start of the month, the investor said. The 4.875% and7% dollar bonds are bid at 98.5 and 99.5 respectively.

Bondholders are in a powerful position. If they refuse toget on board, Ardagh will have to repay the bonds and launch newdebt to finance the acquisition deal - assuming that it doeseventually go ahead.

Gandhi said that it would make sense for Ardagh to offer ahigher fee to bondholders to extend the deadline, rather thanrun the risk of having to pay higher coupons on new bonds thatwould have to be raised.

"Where the bonds are trading suggests to me that the marketexpects Ardagh to come back with a sweetened offer," said theinvestor.

Ardagh and Citi, which is acting as the consent solicitationagent, declined to comment.

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