Distressed debt: Quick update IVG convertible – insolvency plan released

As a former IVG convertible investor, I still follow what is happening there in order to learn how this “new” German bankruptcy process works.

Yesterday, IVG came out with their “insolvency plan”. Some of the detail sare:

– not surprisingly, shareholders and Hybrids get fully wiped out
– they actually plan to delist the stock
– part of the secured loans (Syn loan II) experience no hair cut at all and receive even interest
– the other part (Syn loan I, LBBW loan) AND the convertible get shares in the “NEwCo”
– The convertible holders will get 20% of NewCo which, without giving details is calculated as a 68% recovery

What I find especially interesting is the fact that the convertible still trades at around 75%:

What that means is that convertible holders think that the stock they will receive is worth a lot more than 68% even if it comes in a non-listed form and will be hard to sell.

This in fact means that in theory, under a completely “fair” insolvency proceeding, something could have been left for the Hybrid holders. Under the current insolvency regime, however it seems to be really possible to kick out subordinated holders even if the asset value would imply some recovery as the hybrid holders are not a creditor group.

For me, this doesn’t look fair. It is a clear invitation to distressed debt funds to look at German companies with significant hybrid debt, force them into bankruptcy and kick out the hybrid holders at zero.

Maybe this is also the reason why they want to delist the stock, so that the “True” recovery does not become public directly after the debt/equity swap.


  • Do you consider the hypo-alpe-adria case worth thinking about? Like the A0G0JA-bond f.e.
    Is it too much of a speculation, since the main question is if the Rep. of Austria will pay for it or not? (seems somehow very unimaginable they wont).

    • Hi Peter,

      thanks for the comment. I was actually thinking about the 2,75% 2015 bond last week.

      Honestly, I do not feel comfortable with “Intra Austrian” politics. If they are fully rational, they have to honor the guarantee. On the other hand, Austrian politics at least from the outside doesn’t seem to be fully rational.

      So for the time being I will watch this from the sideline. This is what a comment in Bloomberg is saying:

      Austria could impose losses on bondholders by means other
      than a straight insolvency. The threat of an insolvency and the
      prospect of a lengthy procedure to get a payout on the guarantee
      might compel bondholders to accept a discount if they are
      offered bonds with a guarantee by the federal government
      instead, Bank of America’s Thomas said.

      Now at around 91%, the upside seems to be quite limited compared to the risk.

      • Thanks for the reply,

        yea, it doesnt seem to be much upside left. And every day another expert with a different result regarding the cost of a bankruptcy. Yesterday some estimated it around 10 Billion, which would be much higher than the Anstalt-solution. In combination with the generall Austrian big unwillingness for change and unpredictability a bankruptcy seems to be almost impossible. But who knows. Maybe the mister of finance wants to get some profile since he is somewhat weak and takes his chance (though I doubt it)…

  • Maybe Not If they believe the Assets Are Worth More than 100% of nominal value. The whole Case is far from being transparent.

  • Thanks for following up the IVG Case.

    Since the issuer IVG Finance BV still has Not filed for creditor Protection yet I Could still Imagine a full redemption of the convertible when the put Option matures on March 29. i guess the NewCo owners want to avoid too many involved in NewCo. We will See Soon…

  • Should not all senior debt (syn, convertible) be repaid in full before junior creditors (hybrid) receive any payment? I doubt there is at the moment enough value to repay the senior debt at 100%.

    • #milud,

      you are in principle correct. On the other hand, the current price of 75% for the convertible is far above the “official” recovery rate. To me, the insolvency plan looks pretty much like “Low balling” the asset values to make sure that the hybrids get nothing. But that is my personal opinion, nothing else.

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