Debtwire Europe's restructuring team has produced a series of articles focusing on the measures taken by the main European countries in response to the coronavirus (COVID-19) pandemic, as well as selected companies affected by it. We start today with Italy.
Italy was the first country to be hit hard and fast by the COVID-19 pandemic in Europe, with the government introducing emergency measures to try stem the spread, as well as a decree to rescue its economy, protect workers and enterprises by freezing fiscal contributions and ensuring access to credit through state-backed guarantees.
Since mid-February, the number of cases in Italy has been escalating dramatically, first concentrated in the province of Lodi, then spreading across the entire North and eventually over the whole country. As of yesterday (22 March), Italy had counted 59,138 cases of coronavirus, 5,476 dead and 7,024 recovered, according to data from Worldometer.
To prevent the pandemic from spreading further and to save the national health system from being crushed by the volume of infections, prime minister Giuseppe Conte introduced a government decree on 9 March locking down the entire country. The lockdown is currently set to last until 3 April.
Additional measures were introduced last Saturday (21 March) as the death toll in the country kept rising. With a decree published on the official gazette on Sunday, the government has suspended all non-essential production activities. Essential activities include the agriculture and transportation sectors, activities related to the food, beverage and tobacco industries, and everything linked to the production and distribution of pharmaceuticals, according to the decree.
The new law also strengthens the limitations on movement for Italian residents, by forbidding them to return to their place of residence if they are currently not there.
"Cura Italia" (the cure for Italy)
To support the Italian economy – which had been already only just stumbling along, with the European Commission previously predicting a mere 0.3% growth in GDP for 2020, the lowest rate of the entire Union – the executive also introduced a series of measures packaged in the “Cura Italia” decree, which allocates EUR 25bn for the domestic economy. The decree was published in the official gazette on 17 March.
Cura Italia introduces financing and other extraordinary measures to strengthen the national health systems, together with taking steps to protect workers. All layoffs are suspended for a period of 60 days. The decree also guarantees benefits for individuals active in sectors directly hit by the coronavirus, such as tourism, agriculture and entertainment (salaries below a specific threshold). Moreover, employers can get access for their employees to the national redundancy fund (cassa integrazione) for up to three months.
The law package contains specific directives for small and medium enterprises (SMEs). The government has increased the amount of money available to the Central Guarantee Fund for 2020 by EUR 1.5bn and has modified some regulations concerning its access and use by SMEs; for instance, it has established the maximum guarantee amount at EUR 5m for each business. Further facilities are included for companies active in sectors, such as tourism and hospitality, or single companies hit particularly hard by Covid-19 — in these cases, the newly-allowed guarantees can be added on to existing guarantees.
Additionally, the decree gives SMEs affected by the pandemic the right not to have uncommitted credit lines and factoring facilities revoked until 30 September 2020, and grants a moratorium until the same time for mortgages and other financing repayable in instalments, together with the extension of facilities maturing over the period.
To support liquidity for companies hit by the coronavirus crisis, the state will resort to Cassa Depositi e Prestiti (CdP) to offer guarantees on loans. The measure will allow banks to grant financing more easily. Some EUR 500m was allocated by the executive to cover guarantees on bank financing.
“The measures largely focus on SMEs, which account for some 90% of Italian businesses. For larger companies, which are fewer but have a bigger impact, there are no specific measures so lending banks are thinking about it,” commented one market source. “If these companies start missing payments, banks will have to do provisions for that and there will be an overall liquidity problem.”
The Cura Italia decree also grants extra time for companies who need to get their 2019 annual statements signed off by shareholders, extending the deadline before which the ordinary assembly has to be called to 180 days from 120 days after the closure of the full year. Shareholders will also be allowed to participate via electronic means rather than physically.
A day after the introduction of Cura Italia, a ban on the short selling of any Italian stocks came into force, and is set to last for three months.
Company picks
One of the first names to feel the pain from the current Italian situation is the mother of all Italian restructurings, Alitalia. The national air carrier stopped operating international flights from Milano Malpensa and dramatically reduced the frequency of international flights from Rome Fiumicino airport. As of 9 March, the company has only been operating national flights, reducing the frequency on certain routes like Venice-Rome.
The coronavirus outbreak dramatically exacerbated the situation of Alitalia, a company that has been in extraordinary administration since May 2017. In late 2019 it received a EUR 400m emergency loan maturing on 31 May from the Italian government after failing to repay a previous EUR 900m financing bridge.
Alitalia’s extraordinary administrators had set a deadline on bids for Alitalia on 18 March. However, given the current situation in Italy and the international crisis in the aviation sector, the government was not expecting any bids and as part of the recently approved measure it set aside EUR 600m to rescue the insolvent airline. The money would allow it to cover the impact of the virus and the setting up of a NewCo that would be entirely controlled by the state. Unexpectedly, after the deadline for bids, news came out about a consortium of IT companies led by Almaviva, an Italian provider of customer relationship management and business process outsourcing services, showing interest in buying the airline.
Companies under in-court pre-insolvency proceedings have been granted extra time to cope with the emergency status. Because of the pandemic Acque Minerali d’Italia, a mineral water group that recently filed for admission to pre-insolvency proceedings, was granted an automatic extension by 15 days until 18 June by the court on the top of the traditional 90 days to present its restructuring plan. A 15-day extension also automatically applies to other milestones of the procedure, for instance the deadline by which the company needs to present its first monthly financial and economic update (usually scheduled one month after the beginning of the procedure).
While the entire Italian economy is expected to take a hit, certain sectors are more vulnerable than others, including transportation, tourism and retail, the sources noted.
Moby announced on 19 March that events of default had taken place on its EUR 300m 7.75% notes and EUR 260m senior facility, as the grace periods applicable to non-payments of interest and the amortization payment in February had expired. The ferry operator could be among the companies suffering this summer if the coronavirus pandemic results in fewer tourists coming to Italian shores. COVID-19 is only the latest addition to a list of factors that are set to make the restructuring negotiations between Moby and its creditors particularly long and complicated.
Moby's 7.75% EUR 300m senior secured bonds maturing in 2023 fell to 33-mid today (23 March) from 34.1-mid on 21 February.
“It's true that the virus doesn't help the tourism sector; however, Moby is more freight-focused than other [operators] and the majority of the passenger business is focused on the summer months," commented a source familiar with the situation. “Most bookings are short term, or you have people who show up without a ticket on the spot in the summer, so the impact the virus will have on Moby is still difficult to assess. And low oil prices are helpful.”
The gambling industry will likely face a decline in its retail operations, if people are only allowed outside their homes for necessities.
Gamenet's 3.75% EUR 225m senior secureds maturing in 2023 fell to 75.5-mid from 100.5-mid on 21 February, whilst its 5.125% EUR 225m senior secureds always maturing in 2023 fell to 77.5-mid from 100.8-mid last month.
The company released its FY19 results today (23 March), recording revenues of EUR 738.1m (-5.1% versus the previous year on a pro-forma basis) EBITDA of EUR 164.6m (an increase of 13.4% versus 2018 pro-forma). Due to COVID-19, Gamenet has activated a financial mitigation plan. This includes a very comprehensive set actions both on fixed costs (13% of total) and capex, with the objective to bring EBITDA in the range of EUR -3m to EUR -4m and capex in the region of EUR 1m to EUR 2m for each month of shutdown.
On the upside, the Cura Italia decree could particularly benefit companies that are national champions in their sectors. One name highlighted by market sources is construction group Salini Impregilo, which is part-owned by the State via CdP. The company should be able to reap the rewards of being the only major player left in the construction field in Italy after all its peers over the last years went into financial distress, as earlier reported.
Salini's EUR 250m 3.625% senior secured 2027s — issued at par reoffer in January — are currently quoted at 66.75-mid, down from 93.4-mid on 21 February, and the 1.75% 2024s are trading at 67.5-mid, down from 93.3-mid. The short-term note maturing in 2021 with a 3.75% coupon is quoted at 89.25-mid, down from 102.6-mid.
The 22 March decree halting non-essential production activities across the country excludes the paper and packaging sectors, as their output was deemed as necessary.
These industries were being watched closely by distressed investors across Europe as profits and margins fell, and in cases like Spanish group Lecta — which has an important industrial concentration in Italy through its Cartiere del Garda mill — led to a debt restructuring.
In Italy, Bain-owned specialty paper manufacturer Fedrigoni released an update today confirming that all of the group’s production sites in Italy, which make up an important portion of its global production volumes, as well as its entire supply chain, warehouse and means of transport, will continue to be fully operational and able to fulfil incoming custom orders following this governmental decree.
Fedrigoni's 4.125% EUR 455m senior secureds notes maturing in 2024 fell to 88-mid from 100.8-mid on 21 February, whilst its 4.125% EUR 225m senior secured notes maturing in 2026 fell to 81-mid from 101.2-mid last month.
Packaging and paper manufacturer Pro-Gest's 3.25% EUR 250m senior unsecured 2024s have fallen to 63.75-mid from 69.3-mid on 21 February.
Before the introduction of the latest decree, Pro-Gest had announced on 20 March that all its factories were working. The company had implemented the organisational measures and health precautions necessary in all group plants, in order to comply with the national legislation provisions and the protocol, also following all the national health authorities’ recommendations. It had recently obtained waivers from holders of its minibonds and other lenders for its net leverage covenants at the calculation dates of 31 December 2019 and 30 June 2020.
by Giulia Morpurgo and Chiara Elisei
