Quantcast
Channel: Daily Bankrupt Company Updates | Bankrupt Company News
Viewing all articles
Browse latest Browse all 4593

Diebold Holding Company, LLC – Global Leader in ATM Manufacturing Facing “Unrelenting Squeeze” from Move to Cashless Transactions, Files Prepackaged Chapter 11 with $2.7bn of Funded Debt; Lines Up $1.25bn DIP & Set Be Owned 98% by First Lien Lenders

0
0

May 31, 2023 – Diebold Holding Company, LLC and nine affiliated debtors (NYSE: DBD; together, “Diebold Nixdorf” or the “Debtors”) filed for Chapter 11 protection (on a "prepackaged" basis, with solicitation beginning on May 30th) with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-90602 (Judge TBD). The Debtors* are represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further Board authorized appointments include: (i) Jones Day as general bankruptcy counsel, (ii) FTI Consulting, Inc. as financial advisors, (ii) Ducera Partners LLC as investment bankers and (iii) Kroll Restructuring Administration, LLC as claims agent.

* Diebold Nixdorf is a leading global financial and retail technology company that specializes in the sale, manufacturing, installation and maintenance of self-service transaction systems (such as ATMs and currency processing systems), point of sale terminals, physical security products and software related to services provided to global financial, retail and commercial institutions. In short, the Company provides integrated solutions to automate and digitize banking and shopping processes, and it serves the banking and retail sectors in over 100 countries around the world.

The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($2.7bn of funded debt; NB: the Debtors' 10-Q for Q1 2023 noted assets of $3.091bn and liabilities of $4.563bn as at March 31, 2023). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) U.S. Bank Global Corporate Trust (as Trustee for $72.9mn 8.5% Senior Notes Due 2024), (ii) Accenture International Limited ($31.5mn trade claim) and (iii) Ernst & Young LLP ($23.3mn trade claim).

Petition Date Highlights

  • Global Leader in the Manufacture of ATMs Files for Bankruptcy (on a "Prepackaged" Basis) with $2.7bn of Funded Debt
  • Debtors Cite "Declining Sales Growth" (Resulting from Proliferation of Non-Cash Options); Disappointing 2016 Acquisition of Wincor Nixdorf Gmbh; Insufficient Additional Liquidity from 2022 Debt Restructuring; and Recent Macro-Economic Headwinds (ie Covid, Supply Chain Issues and Inflation) as Key Factors Leading to Bankruptcy
  • Holders of First Lien Claims to get 98% of Emerged Equity, Holders of Second Lien Claims to Share 2%
  • Holders of 2024 Unsecured Notes in Line for Estimated 2% Cash Recovery
  • RSA-Backed Lender Support Includes 80.4% Superpriority Credit Facility; 79% of First Lien Term Loan; 78% of First Lien Notes; and 58.3% of Second Lien Notes
  • Debtors Line Up $1.25bn DIP Financing Facility Which Converts to Exit Facility

In a press release announcing the filing, Diebold Nixdorf noted that it had: “….entered into a restructuring support agreement with certain of its key financial stakeholders to effectuate a comprehensive debt restructuring transaction that is intended to be completed efficiently and quickly….The Company has entered into this agreement with creditors who hold a significant majority of the Company's outstanding secured term loan debt and secured notes (the 'Consenting Creditors'), including approximately (a) 80.4% of the Company's superpriority credit facility; (b) approximately 79% of the Company's first lien term loan; (c) approximately 78% of the Company's first lien notes; and (d) approximately 58.3% of the Company's second lien notes.

The restructuring support agreement contemplates the effectuation of a deleveraging transaction through, among other things, (i) a pre-packaged chapter 11 plan of reorganization to be filed by the Company and certain of its subsidiaries (collectively, the 'Debtors') contemporaneously with the commencement by the Debtors of voluntary cases under chapter 11 of title 11 of the U.S. Bankruptcy Code, (ii) a scheme of arrangement to be filed by Diebold Nixdorf Dutch Holding B.V. (the 'Dutch Issuer') and certain of the Company's subsidiaries contemporaneously with the commencement by Dutch Issuer of voluntary scheme proceedings under the Dutch Act on Confirmation of Extrajudicial Plans (Wet homologatie onderhands akkoord) and (iii) recognition of such scheme of arrangement pursuant to a case commenced under chapter 15 of the U.S. Bankruptcy Code by the Dutch Issuer.

The Company expects the restructuring transactions to be consummated in the third quarter of 2023.  The terms of the restructuring support agreement contemplate that the common shares of the restructured Company will be listed on the New York Stock Exchange."

The Debtors' CEO Octavio Marquez commented: "With the support of our creditors, we have reached an agreement to restructure and strengthen our balance sheet, enhance liquidity and position Diebold Nixdorf for long-term success."

Goals of the Chapter 11 Filing

"To implement a comprehensive financial restructuring of their funded debt, the U.S. Debtors will commence chapter 11 cases…in the Bankruptcy Court seeking Confirmation of the U.S. Plan, and the Netherlands Debtor will institute proceedings in the Dutch Court seeking sanctioning of the WHOA Plan."

Overview of the RSA and Plan

The Disclosure Statement (first filed with a May 30th 8-K (amended on 31st) which also attached cleansing materials) provides: "As set forth in the U.S. Plan and the WHOA Plan, the Restructuring Transactions provide for a comprehensive restructuring of Claims against and Interests in the Company, significant deleveraging of the Company’s capital structure, enhanced operating liquidity in order to preserve the going-concern value of the Company’s businesses, maximize recoveries available to creditors and an equitable distribution to stakeholders. More specifically, the Restructuring Transactions provide, among other things, that: 

  • Pursuant to the U.S. Plan, all Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims, and Allowed Other Secured Claims will be paid in full in cash or receive such treatment that renders them Unimpaired under the Bankruptcy Code; 
  • Pursuant to the U.S. Plan, all Allowed General Unsecured Claims will be Reinstated and paid in the ordinary course of business in accordance with the terms and conditions of the particular transaction or agreement giving rise to such Allowed General Unsecured Claim;
  • DNI will seek approval of a new $1.25 billion debtor-in-possession term loan facility, to be provided by certain of the Company’s existing first lien lenders on the terms set forth in the DIP Term Sheet and such other terms that are acceptable to the U.S. Debtors and a requisite number of lenders under the DIP Facility. The proceeds of the DIP Facility will be used to: (i) repay in full the term loan obligations, including a make-whole premium, under the Superpriority Credit Agreement; (ii) repay in full the ABL Facility and cash collateralize letters of credit thereunder; (iii) pay costs and reasonable and documented out-of-pocket fees and expenses related to the court-supervised restructuring proceedings; (iv) make certain “adequate protection payments”; and (v) fund the working capital needs and expenditures of the Company Parties and their non-debtor affiliates during the pendency of the court supervised restructuring proceedings; 
  • Holders of Allowed First Lien Claims shall receive their pro rata share of 98% of the New Common Stock, subject to dilution on account of the Backstop Premium, the Upfront Premium, the Additional Premium, the Participation Premium (each as defined in the DIP Term Sheet) and New Management Incentive Plan; 
  • Holders of Allowed Second Lien Notes Claims shall receive their pro rata share of 2% of the New Common Stock, subject to dilution on account of the Backstop Premium, the Upfront Premium, the Additional Premium and New Management Incentive Plan; 
  • Holders of Allowed 2024 Unsecured Notes Claims shall receive their pro rata share of an amount of cash that would provide a holder of an Allowed 2024 Unsecured Notes Claim with the same percentage recovery on its Allowed 2024 Stub Unsecured Notes Claim that a holder of an Allowed Second Lien Notes Claim is receiving in respect of its Allowed Second Lien Notes Claim under Article III.B.6 of the U.S. Plan; and 
  • Cancellation of DNI’s existing equity Interests. 

Events Leading to the Chapter 11 Filing

The Disclosure Statement provides a rather anodyne mea culpa as to the Debtors' need to seek bankruptcy shelter beginning its narration with the Debtors' disappointing 2016 Wincor Neixdorf Gmbh acquisition, and the ensuing $500.0mn cash burn as anticipated merger benefits failed to materialize against a backdrop of higher "non-routine" expenses, … followed by the standard string of macro-economic headwinds (COVID, supply chain disruptions and inflation)…and the concession that they simpy got the numbers wrong in their recent 2022 restructuring, ie that the "2022 Debt Restructuring ultimately provided insufficient liquidity for the Company’s working capital needs."

Buried, however, in the description of the lackluster Wincor Neixdorf acquisition is a reference to what may be the most critical point here, that from 2016 "the Company faced flat or declining sales growth and gross margins," although the Debtors fail to drill down on that admission in their bankruptcy filings. 

One has to dig (really) deep into the risk factors in the Debtors' 2022 10-K to get insight on that "declining sales growth." From the 10-K: "The proliferation of payment options other than cash, including credit cards, debit cards, store-valued cards and mobile payment options could result in a reduced need for cash in the marketplace and a resulting decline in the usage of ATMs. The U.S., Europe and other developed markets have seen a shift in consumer payment trends since the late 1990's, with more customers now opting for electronic forms of payment, such as credit cards and debit cards, for their in-store purchases over traditional paper-based forms of payment, such as cash and checks. The recent COVID-19 pandemic has accelerated consumer transition towards non-cash payment alternatives driving an increase in digital, mobile and contactless payment methods. Additionally, some merchants offer free cash back at the POS for customers that utilize debit cards for their purchases, thus providing an additional incentive for consumers to use these cards. The continued growth in electronic payment methods could result in a reduced need for cash in the marketplace and ultimately, a decline in the usage of ATMs. New payment technology and adoption of mobile payment technology, digital currencies such as Bitcoin, or other new payment method preferences by consumers could further reduce the general population's need or demand for cash and negatively impact sales of ATMs and selected products, services and software."

This is exactly the "hardware squeeze" what the American Banker is talking about when it notes (in discussing the Debtors' predicament) that an "unrelenting retreat from static points of contact in the payments and financial services industries is pushing at least one traditional terminal maker to a breaking point." 

From the Disclosure Statement: "After the 2016 Acquisition, whereby the Company acquired Wincor Nixdorf Gmbh, the Company faced flat or declining sales growth and gross margins while supporting a significantly higher debt burden. At the same time, the Company incurred large non-routine expenses, attributable to post-merger capital investment and restructuring costs, which contributed to a cash burn of more than $500 million since 2018, stressing the Company’s liquidity. The Company posted its best adjusted gross profit margin since the 2016 Acquisition in the third quarter of 2019, largely as a result of the certain cost-cutting measures.

The Company continued to face liquidity headwinds leading up to and throughout 2022. Changes in operations and sales due to COVID-19, supply chain disruptions and rising inflation raised manufacturing costs, further reducing net income and contributing to an order backlog that grew to $1.3 billion by the end of 2022. In March 2022, the Company entered into a covenant relief amendment that modified the total net leverage ratio covenant in the credit agreement governing its then-extant revolving credit facility and term loan B facility, providing limited financial flexibility. In May 2022, S&P downgraded the Company to a credit rating of CCC+ due to what it identified as an unsustainable capital structure. At the time, the Company’s outstanding revolver balance of $136 million and outstanding first-lien term loan of $755 million were scheduled to mature in 2023, with an additional $400 million of unsecured notes scheduled to mature in 2024. The liquidity situation and impending maturities led the Company to engage with its lenders to try to extend maturities and augment liquidity.

As a result of months of negotiations, in October 2022, the Company announced a transaction support agreement (the 'TSA') for a debt restructuring (the '2022 Debt Restructuring') to refinance a portion of the Company’s then-existing debt structure and provide for an additional new-money facility. The 2022 Debt Restructuring was consummated on December 29, 2022 (the 'Settlement Date'). As part of the 2022 Debt Restructuring, the Company entered into a new, $250 million asset-based ABL Facility, which replaced the Company’s prior revolving facility. Non-debtor Diebold Nixdorf Holding Germany GmbH ('German Borrower') also became the borrower under a new $400 million Superpriority Term Loan, with lenders party to the TSA with respect to the 2022 Debt Restructuring serving as lenders under the Superpriority Term Loan. 

The Company also entered into a twelfth amendment (the 'Twelfth Amendment') to the credit agreement, dated as of November 23, 2015 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the 'Existing Credit Agreement'). The Twelfth Amendment, among other things: (a) permitted the Exchange Offers and Consent Solicitations (as defined below), the Term Loan Exchange (as defined below) and the entry into the Superpriority Facility…, the ABL Facility and certain other related transactions (together, the 'Refinancing Transactions'); (b) removed substantially all negative covenants and mandatory prepayment provisions from the Existing Credit Agreement; and (c) directed the collateral agent under the Existing Credit Agreement to release the liens on certain current-asset collateral securing the ABL Facility on a first-priority basis (the 'ABL Priority Collateral') and certain other collateral securing the Company’s obligations under the Existing Credit Agreement and the Company’s existing subsidiary guarantors’ obligations under the related guarantees (in each case, to the extent permitted, including under applicable law). 

The 2022 Debt Restructuring ultimately provided insufficient liquidity for the Company’s working capital needs, and…on March 21, 2023, the Company entered into the FILO Amendment to provide the Company with $55 million in additional liquidity as the Company and its lenders negotiated a long-term solution that would allow the Company to continue to operate and satisfy its obligations to its customers, suppliers and employees.

DIP Financing

The Disclosure Statement provides: "….the RSA includes an agreement on a consensual $1.25 billion priming debtor in possession financing facility, which will convert to an exit facility on the Effective Date of the U.S. Plan and the WHOA Plan, and the consensual use of cash collateral, each of which is essential to the Company’s proposed restructuring."

Prepetition Indebtedness

As of the Petition date, the Debtors has $2.7bn in outstanding funded debt obligations, including $2.631 billion of secured obligations, as set forth in the following chart:

The following table depicts the Debtors’s prepetition capital structure, exclusive of accrued but unpaid interest and fees (and also exclusive of capitalized fees): 

Key Documents

The Disclosure Statement attached the following documents:

  • Exhibit 1: Restructuring Support Agreement
  • Exhibit 2: U.S. Plan of Reorganization
  • Exhibit 3: WHOA Plan of Reorganization
  • Exhibit 4: Financial Projections
  • Exhibit 5: Valuation Analysis
  • Exhibit 6: Liquidation Analysis
  • Exhibit 7: Corporate Structure of the Company
  • Exhibit 8: Dutch Scheme Parties’ Balance Sheet
  • Exhibit 9: Annual Financial Reports of the Dutch Scheme Parties from 2019 – 2021

About the Debtors

According to the Debtors: “Diebold Nixdorf, Incorporated (NYSE: DBD) automates, digitizes and transforms the way people bank and shop. As a partner to the majority of the world's top 100 financial institutions and top 25 global retailers, our integrated solutions connect digital and physical channels conveniently, securely and efficiently for millions of consumers each day. The company has a presence in more than 100 countries with approximately 21,000 employees worldwide.“

The Disclosure Statement adds: "The Company, which was founded in 1859 in Cincinnati, Ohio, is a leading global financial and retail technology company that specializes in the sale, manufacturing, installation and maintenance of self-service transaction systems (such as ATMs and currency processing systems), point of sale terminals, physical security products and software related to services provided to global financial, retail and commercial institutions. In short, the Company provides integrated solutions to automate and digitize banking and shopping processes, and it serves the banking and retail sectors in over 100 countries around the world.

The Company currently employs approximately 21,000 workers and has a global real estate footprint of approximately 1.5 million square feet composed of manufacturing facilities, customer service centers and corporate offices. The Company’s organizational footprint is vast and consists of more than 140 entities in jurisdictions throughout North and South America, the United Kingdom, the European Union and other locations throughout Asia and the Middle East. As a result of the 2016 Acquisition, the Company’s global operations are coordinated by corporate teams in both Hudson, Ohio and Paderborn, Germany. Chairman of the Board, President and CEO Octavio Marquez, Chief Financial Officer James Barna, Chief Legal Officer and Secretary Jonathan Leiken, and Chief People Officer Lisa Radigan sit in Hudson. Chief Operating Officer Olaf Heyden sits in Paderborn. Executive Vice President, Global Banking Joe Myers and Executive Vice President, Global Retail Ilhami Cantadurucu work remotely."

Read more Bankruptcy News

The post Diebold Holding Company, LLC – Global Leader in ATM Manufacturing Facing “Unrelenting Squeeze” from Move to Cashless Transactions, Files Prepackaged Chapter 11 with $2.7bn of Funded Debt; Lines Up $1.25bn DIP & Set Be Owned 98% by First Lien Lenders appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


Viewing all articles
Browse latest Browse all 4593

Latest Images

Trending Articles





Latest Images