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A US hedge fund is leading a group of creditors into battle with a European automotive tycoon and one of India’s wealthiest families over whether a quirk in Austria’s restructuring laws can be used to force lenders to take huge haircuts.
Lenders to motorbike manufacturer KTM look set to receive just €600mn from about €2bn of claims under the company’s restructuring plans to be heard and voted on in court on Tuesday, while shareholders would retain all of their equity.
The fight is the latest to put Austria’s insolvency rules under the spotlight, and comes after an extended tussle in the courts over restructuring plans put forward by former property billionaire René Benko to inflict large losses on creditors.
KTM, backed by India’s billionaire Bajaj family and Austrian businessman Stefan Pierer, filed for insolvency in November after a post-pandemic slump in demand for its vehicles and rising energy and labour costs piled pressure on its finances.
A month later, the Bajaj family, which owns a minority stake in KTM through its company Bajaj Auto, marked its investment at €470mn.
KTM is now pursuing a restructuring plan that will award its lenders — which include several Austrian regional banks and the European Investment Bank — a payout of just 30 per cent of their claims, the legal minimum under Austria’s insolvency rules.
If successful, the company would write off €1.4bn of debt while shareholders would retain all of their equity in the business. Its parent company, Pierer Mobility, would seek to raise up to €900mn of new money to be injected in KTM through a combination of debt and equity.
A consortium of lenders led by hedge fund Whitebox is attempting to push through an alternative plan that would share the pain between creditors and shareholders.
Many creditors have extended financing to KTM in a regional German private debt market, known as the Schuldschein.
Under the Whitebox plan, lenders would have the chance to reinstate their debt at a value of 45 cent on the dollar, rather than taking payouts equivalent to 30 cents, and could provide up to €400mn of new financing. It would also let them take an equity stake in the company of up to 20 per cent.
However, KTM’s management, which has to agree to put forward any deal for it to be considered by creditors and shareholders, has failed to engage with the group’s proposal according to Whitebox.
The consortium’s challenge is being stifled by what critics say is a flaw in the way European restructuring legislation was transposed into Austrian law, giving shareholders greater power to steer proceedings.
Austria’s insolvency regime means that even if the alternative plan were put forward, KTM’s shareholders would be able to vote it down and push the company into bankruptcy.
If creditors vote down the company’s plan when it is put to the regional court of Ried im Innkreis on Tuesday, KTM would also be pushed into bankruptcy, something the company’s administrator has said would cut the payout to lenders to 15 cents on the dollar.
The Whitebox-led group have said that such a slim payout does not reflect the company’s prospects.
A representative for Bajaj Auto declined to comment. Pierer Mobility, KTM’s parent company, did not immediately respond to a request for comment.
