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Wirecard Creditors Seek More Clarity Amid Talks Over Debt

Steven Arons, Eyk Henning and Jacqueline Poh

(Bloomberg) -- Wirecard’s creditors are demanding more clarity from the company in return for the extension of almost $2 billion in financing after it breached terms on the loan, people familiar with the matter said.

At least 15 commercial lenders, including Commerzbank AG and ABN Amro, are in negotiations about the steps to take after the German payments company said on Thursday it’s unable to release its annual report because it can’t locate 1.9 billion euros in cash ($2.1 billion), the people said. One of them, Bank of China Ltd., is considering writing off and terminating its credit line with the company, separate people familiar with the matter said.

Read more: Bank of China Is Said to Weigh Ending Wirecard’s Credit Line

Meanwhile, bondholders are also preparing for restructuring talks or for an “impending insolvency” and hired advisers One Square and Kirkland & Ellis.

Concerns over the missing money prompted a collapse in Wirecard AG shares and the departure of CEO Markus Braun, who was replaced on an interim basis by James Freis. In an indication of the company’s worsening situation, Moody’s Investors Service cut Wirecard’s credit ratings six levels on Friday and then withdrew its rating altogether on Monday.

Wirecard hired investment bank Houlihan Lokey to come up with a financing strategy and said it’s likely the missing money doesn’t exist.

Wirecard could make an announcement accepting outside monitoring and higher transparency as early as this week, and, in return, the banks may not exercise their right to call the loan, one the people said.

The lenders are also considering hiring outside help as they seek to navigate the risk of a potentially massive default, the person said asking not to be identified discussing the private information.

Wirecard has an outstanding revolving credit facility of 1.75 billion euros, according to data compiled by Bloomberg. The German payments company has warned that loans of as much as 2 billion euros could be terminated because its audited results weren’t published by a Friday deadline.

About 90% of the RCF has been drawn by the company, according to people familiar with the matter and a list detailing the RCF participation that was seen by Bloomberg:

Most of the banks are leaning toward an extension of the repayment obligation in order to better assess the potential impact of a default on their balance sheets, the person said. However, a prolonged extension could be seen as delaying an insolvency, which is illegal under German law.

Spokespeople for ABN Amro, Commerzbank, ING, LBBW, Cregit Agricole, DZ Bank, Citigroup and Deutsche Bank declined to comment. Representatives for the other banks didn’t immediately respond to requests seeking comment.

Wirecard didn’t respond to a request for comment. In a separate statement on Friday the company said it’s in “constructive talks” with lending banks.

Read more: Wirecard’s $2.1 Billion Hole Deepens After Forgery Claim

Deutsche Bank Chief Risk Officer Stuart Lewis declined to comment on Wirecard when asked about the exposure on a previously scheduled analyst call on Thursday. However, he said the bank typically hedges its exposure to companies with a low investment-grade credit rating and encouraged analysts to “draw your own conclusions.” Wirecard has a rating that’s one notch away from sub-investment grade.

Moody’s had previously said that Wirecard’s ratings could be lowered to junk. “The current findings are even more material compared to previous allegations, as they refer to the substance of available cash holdings, which had been a key credit strength of Wirecard’s previous rating,” Moody’s said in a statement Friday. The questions looming over the company’s financials also may trigger a “swift decline” in its customer base and transaction volumes, Moody’s said.

Lending Risks

Wirecard’s revolving facility is due June 2024. Lenders include Agricultural Bank of China Ltd., Bank of China Ltd., Commerzbank AG, Deutsche Bank AG, DZ Bank AG, and Landesbank Baden-Wuerttemberg.

The company sold 500 million bonds in 2019 to repay part of drawn down amount.

Banks typically take and hold their revolving credit facilities’ commitments for high-grade companies that means most of Wirecard’s lenders may not have offloaded their lending risk in the company.

Read more: What’s Next for Wirecard Debt in Balance-Sheet Crisis

(Updates with details throughout. A previous version erroneously stated that Raiffeisen International is a lender in table.)

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