The sustainable portion of the loan will be on the OpCo level, which would be repayable with the operational cashflow of the company, whereas the unsustainable portion will be on the MidCo level, said the first source.

MidCo-level debt would either be structured as a bullet loan, with interest being paid on an ongoing basis and principal repaid on maturity, or it might carry a payment-in-kind (PIK) interest, with no interest paid through the life of the loan but accrued interest repaid alongside principal at maturity, said the first source.

If the shareholders want to sell their shares, the MidCo-level loan would need to be paid first, said the first source.

Debtwire first flagged IDO as a restructuring candidate in March 2018, as a result of pressure from lira depreciation, unexpected new competition and the introduction of lower cost road transportation via the Gebze-Izmir bridge.

The security package under the existing loan being restructured includes a USD 25m yearly sponsor guarantee and a USD 40m letter of guarantee from the Turkish sponsors to cover cash deficits of more that USD 25m a year, as previously reported by Debtwire.

Security also includes a share pledge over 100% of IDO’s shares, mortgages over IDO’s vessels, an account pledge and a shareholder loan assignment.

The initial plan was to convert a portion of the company's hard-currency debt into Turkish lira, said the second source. However, Turkish companies are currently having problems obtaining the necessary approval from Turkey’s Banking Regulation and Supervision Agency (BRSA) in this respect, said a third source, who is familiar with the situation.

Several companies are resorting to the same structure for their debt restructurings, said a fourth source familiar with the situation. Banks are trying to avoid the entire loan to be classified as an NPL and separate the unsustainable portion with different repayment terms while keeping the payable loan on OpCo level, noted the first source.

There had been long-running efforts to create a bad bank in Turkey, but it failed, said the fourth source, adding that instead of the never-ending debt restructurings with maturity extensions or a bad bank, creditors resorted to creating MidCo or HoldCo-level bad loans with very low chances of repayment.

Under these structures, the MidCo or HoldCo-level loan is subordinated to the OpCo-level loan, said the third source.

This all comes to banks wanting to provision less by distilling the healthy loan from the rest and transferring it to the good books, said the fourth source familiar. Moreover, banks would have the option to trade the unsustainable portion on the secondary market in the future, he added.

The 30-year ferry concession was privatised by Istanbul Municipality and acquired by a consortium of local and international investors – through a vehicle named TASS – for USD 861m in 2011. The original acquisition loan of USD 750m was signed in June 2011 to finance the privatisation.

TASS comprises Tepe Insaat (30%), Akfen Holding (30%), Sera Group Investments (10%) and a number of parties related to Souter Investments (30%). Souter Investments is the family investment office of Scottish bus baron Brian Souter.

The amortising loan was refinanced in November 2014, with the final payment now due in December 2025 with some USD 500m remain outstanding, according to press reports.

Following the refinancing, Garanti Bank, Isbank, VakifBank and the EBRD each hold a little over 20% of the loan, while DenizBank and TSKB hold about 5.5% while Garanti Bank acts as the facility agent for the debt, as reported.

The company hired local investment bank Unlu & Co. to advise on the restructuring. The sponsors have been advised throughout the process by local lawyer Aydogan Semizer while investment bank Lazard is acting as financial advisor to the creditors.

IDO could not be reached for comment.

Asli Orbay Assistant Editor Debtwire CEEMEA

Asli Orbay is a reporter working for Debtwire CEEMEA, with a focus on arbitration, litigation and distressed situations. Prior to joining Debtwire, Asli worked as a banking and finance lawyer for Clifford Chance in Istanbul. Asli holds an LLM in international economic and trade law and a she is currently a PhD candidate studying at Brunel University.