COURT: ICA conciliator authorizes Fintech loan B tranche; cuts road JV shareholder agreement clauses - Debtwire

COURT: ICA conciliator authorizes Fintech loan B tranche; cuts road JV shareholder agreement clauses

05 October 2017 - 12:00 am

A conciliator official overseeing Empresas ICA’s court-supervised bankruptcy proceeding has approved the B tranche of a loan previously granted by creditor Fintech, although the USD 107m portion of the loan hasn’t been disbursed yet, according to court documents seen by Debtwire. Along with an initial USD 108m A tranche already tapped, the financing is critical to the Mexican construction company and infrastructure operator’s restructuring plan.


In a series of initial decisions following his appointment, conciliator Thomas Heather has also put an end to certain clauses of the agreement that governs OVT, a joint venture with Canada’s Caisse de depot et placement du Quebec (CDPQ) for the operation of roads, as they were deemed damaging to the viability of the company and for its creditors, the documents showed.


ICA and Fintech, a fund owned by Mexican billionaire David Martinez, agreed in June 2016 on a USD 215m convertible loan. The financing can be converted into up to 40% of ICA’s capital stock, on a fully-diluted basis after the debt restructuring.


The disbursement of the B tranche is subject to certain conditions, among them the conciliator’s approval, according to the court documents. The financing is also subject to the creation of certain guarantees, including a pledge on the controlling stake in airport operator OMA that ICA owns.


Echoing ICA’s reasoning when filing a pre-packaged restructuring plan for five of its companies in late August, Heather argued in a filing with the bankruptcy court that the Fintech loan is necessary to maintain the operating activities of the company and ensure its survival. Proceeds from the Fintech loan are being used to fund new road, airport and water projects.


“The lack of disbursement of the loan agreement’s B tranche will result in a worsening of the serious liquidity problem of the [ICA] companies under bankruptcy, putting at risk their survival and that of the companies they hold business relations with,” Heather said.


The conciliator noted that, without the new financing, ICA won’t be able to obtain new contracts and to remain as a going concern.


Therefore, the conciliator has authorized ICA to proceed with all necessary steps for the disbursement of Fintech loan’s second tranche, the documents showed. Given its nature as a necessary financing provided after the acceptance of the insolvency request, the B tranche will rank higher – credito contra la masa, in Spanish – than the rest of claims in the payments waterfall.


In a separate court document, Judge Francisco Penaloza, of Mexico City’s Twelfth District Court for Civil Matters, who is handling ICA’s bankruptcy, informed creditors of the conciliator’s argumentation and decision.


OVT agreement impairs ICA’s road investments


As the conciliator’s duties include a defense of the borrower’s creditors and the ability to cancel pending contracts, Heather has opposed ICA’s fulfillment of a shareholders agreement that it signed with CDPQ to create OVT in June 2015. In a document dated 18 September, Heather informed the bankruptcy judge of his decision for the partial early termination of ICA’s agreement with CDPQ.


The conciliator has specifically terminated five clauses, according to the court documents. Two of those clauses prevented ICA from directly or indirectly participating in projects that could compete with those under OVT, as well as from investing in road brownfield projects, those which are already in operation.


A third clause gave OVT preferential rights to acquire or participate in ICA’s road projects. The last two clauses also granted OVT preferential rights for the participation in certain greenfield projects, those which still need to be constructed.


Those clauses “clearly” affect ICA’s creditors, as they prevent the company from investing in projects and freely executing road projects without OVT, Heather argued. The conciliator also noted that the clauses reduced ICA’s ability to sell assets at market value and hence prevent it from maximizing the value of its assets. The limitation would allow OVT, as a preferential buyer, to participate in non-competitive, market-distorting bidding processes, with terms that would be more negative for ICA and its creditors.


Should those specific clauses not be terminated, the limitations that they impose on ICA would imply that the company stops participating in road projects, with a subsequent reduction in revenue, Heather said, noting that the consequences could be even worse.


“In a worse scenario, [it would imply] that Emica [Empresas ICA] is forced to transfer productive assets to OVT, for the exclusive benefit of that company [OVT], without participating in market negotiations that could result in higher competition, something that would cause a clear reduction of its [ICA’s] bankruptcy asset base,” the conciliator warned.


As with the approval of Fintech loan’s B tranche, judge Penaloza subsequently informed creditors of the conciliator’s argumentation and decision.


Precautionary measures impede contract cancellations


When accepting ICA’s pre-pack in early September, and at the request of ICA, the bankruptcy judge also imposed certain precautionary measures, which, nonetheless, remained private to the general public.


The court documents seen by Debtwire showed that the precautionary measures include, among other things, a prohibition on canceling contracts and infrastructure concessions awarded to ICA. The measures explicitly mention a contract for the construction of the foundation slab of the terminal building of Mexico City’s new international airport, the Cuatro Cienegas road project and the Santa Maria dam project. With the goal of avoiding future controversies with government entities and third parties, the conciliator requested certain additions to the precautionary measures to clarify the role of those government bodies, and the bankruptcy judged accepted the request, according to the documents.


Through a 90%-controlled consortium, ICA was awarded in October 2016 an MXN 7.55bn (USD 412.4m) contract to construct the foundation slab of the terminal building. Also, as part of a consortium that included, among others, Mexico-based Cicsa and Spain-based Fomento de Construcciones y Contratas (FCC), both controlled by Mexican billionaire Carlos Slim, ICA won in January 2017 an MXN 84.83bn contract for the terminal building. ICA also presented an MXN 1.54bn bid to build the airport’s control tower, but it didn’t win the contract.


With those precautionary measures, ICA might be trying to avoid the fate of oil services provider Oceanografia, which lost all its contracts with government-owned oil producer Pemex, its sole client, after falling into bankruptcy. The lack of revenue eventually forced Oceanografia to a liquidation declaration, as reported.


Creditor list expected soon


Along with a general oversight of the bankruptcy proceeding, conciliators in Mexico are tasked with certain specific duties, including the preparation of a list of creditors.


The conciliator has to prepare and submit to the court a provisional list with the names of creditors and amounts to be recognized within 30 calendar days after the publication in Mexico’s official gazette, or DOF, of the ruling that accepted the bankruptcy request. ICA’s bankruptcy ruling was published by the DOF on 12 September.


Creditors, as well as those wanting to be recognized as creditors but not included in the provisional list, will then be entitled to challenge the list. After that, the conciliator will submit a final list to the bankruptcy judge, who will use the list as a base for a ruling recognizing creditors and the amounts owed.


ICA and creditors holding more than 50% of total liabilities must agree on a definitive restructuring plan within 185 days after the publication of the bankruptcy ruling by the DOF, or otherwise the company would face a liquidation. The conciliation period, though, is allowed up to two 90-day extensions.


With the support of Fintech, one of the company’s largest creditors, ICA already gathered support for its pre-pack from more than 50% of its liabilities, as reported.


ICA’s USD 700m 8.875% senior unsecured bonds due 2024 last traded 4 October at 25.25, according to MarketAxess.