Wasps Finance seeks consents to amend 6½% bonds, waive covenant breach

By Marisa Wong

Morgantown, W.Va., Dec. 21 – Wasps Finance plc has launched a consent solicitation for its £35 million 6½% secured bonds due May 13, 2022 guaranteed by Wasps Holdings Ltd. and Arena Coventry Ltd., according to a notice.

The issuer and guarantors are asking bondholders to approve waivers and amendments to the terms of the bonds.

Wasps is making the consent solicitation as a result of a reduction in consolidated EBITDA for the financial year ended June 30. The reduction to £2.4 million from £3.5 million was identified through an audit by PricewaterhouseCoopers LLP.

The overstatement of consolidated EBITDA was due to accounting irregularities relating to a £1.1 million cash contribution from a shareholder. Specifically, the company and its auditors have concluded that the cash contribution was incorrectly accounted for as income under IFRS.

Due to the timing of receipt of the cash contribution, Wasps’ board of directors and its auditors have also concluded that the cash contribution should be accounted for as a capital contribution made in the year ending June 30, 2018.

Consequently, the guarantors have failed to maintain a ratio of consolidated EBITDA to consolidated finance costs of at least 1.5 to 1.0 as of and for the 12-month period ended on June 30.

The issuer and the guarantors are also seeking to make some changes to the conditions of the bonds as a result of inconsistencies in definitions used in the financial covenants with the group’s operational and cash flow model.

Wasps is proposing the following:

• To waive breaches of the conditions and the trust deed arising from the exclusion under IFRS of the cash contribution from the income of the group for the year ended June 30;

• To restore the required account balance required to be maintained in the interest service reserve account to an amount equal to 3.25% of the total nominal amount of the bonds originally issued. That amount is to be maintained in the interest service reserve account until the guarantors and Arena Coventry (2006) Ltd. have complied with the bonds’ covenants for a period of at least three consecutive financial years (previously two).

The required account balance will be funded by an increase in the shareholder loan. The proposals further seek to amend the conditions so that it will be an event of default if the issuer breaches its obligation to maintain the required account balance and fails to remedy that breach within 10 days after notice of default has been given;

• To ensure that the asset cover ratio is consistent with the group’s operational and cash flow model on which the financial covenants were originally modeled and in use since the issue of the bonds, which expressly excludes subordinated debt from that calculation as it is junior to and repayable after the bonds;

• To ensure that when determining consolidated EBITDA (i) any future new shareholder contributions received by the group not otherwise accounted for in the group’s profit before income tax can be included and (ii) the amount of the distribution made by IEC Experience Ltd. to Compass Contract Services (UK) Ltd. is added back to profit before income tax, as per the group’s operational and cash flow model.

The proposal will specifically require the increase in the shareholder loan to restore the required account balance to be maintained in the interest service reserve account to be excluded from the calculation of consolidated EBITDA; and

• To correct an error in the form of compliance certificate in the trust deed.

A bondholders’ meeting is scheduled for Jan. 19. At the meeting, bondholders will be asked to consider and pass an extraordinary resolution to amend the bonds.

Holders who vote in favor of the extraordinary resolution will be eligible to receive a 0.2% consent fee. Holders must deliver voting instructions by 5 a.m. ET on Jan. 17.

Bondinvest Capital Ltd. (m.dyson@bondcap.co.uk, attn.: Michael Dyson, m.smith@bondcap.co.uk, attn.: Michael Smith, +44 14 0378 8456) is the solicitation consultant. Lucid Issuer Services Ltd. (wasps@lucid-is.com, +44 20 7704 0880, attn.: David Shilson) is the tabulation agent.

U.S. Bank Trustees Ltd. is the trustee.

Nick Eastwood, chief executive officer of Wasps Holdings, commented in a press release, “We take the events and circumstances surrounding the accounting of the cash contribution extremely seriously and have implemented various steps to strengthen the robustness of the group’s reporting and accounting procedures.

“The business has evolved significantly since we moved to the Ricoh Arena in 2015. We have continued to grow the business, reported record revenues and reduced operating losses as part of our strategy to build a stable foundation for our long-term future. We welcome the continued support from our bondholders throughout this time.

“We believe the proposals announced today represent important amendments that are in their interest as part of the group’s ongoing development and commercial success,” Eastwood said.

Wasps Finance is a subsidiary of London Wasps Rugby Football Club Ltd.

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