InPost puts bondholder protections to the test

E-commerce platform InPost has entered the European high yield (HY) market this week with a new seven-year senior secured bond as part of a €3bn financing package to help fund its acquisition by an Advent led consortium. Neither the transaction’s size nor the issuer's business and credit metrics are unusual. Investor discussions have been centred on a particularly aggressive feature of the covenant package.

InPost’s preliminary offering memorandum includes an anti-cooperation provision that would allow the company to disregard the votes of bondholders participating in a broadly defined “Cooperation Agreement”. Cooperation agreements allow creditors to coordinate their actions in distressed situations or during liability management exercises, rather than negotiating with an issuer individually. This has been an important tool for HY investors in the past, with managers often benefiting from higher recovery rates and subsequently lower incurred losses on defaulted bonds. The recent example of SFR's restructuring, the largest in European HY markets to date, highlights this, with recoveries in the senior secured tranches in the region of 85%.

The inclusion of an anti-cooperation provision in the deal’s documentation would remove investors’ ability to enter into effective cooperation agreements. This not only raises questions about the intentions of InPost’s new owners but would also represent a significant weakening of bondholder protections. Voting rights are particularly important when a credit becomes stressed, and restricting investors’ ability to coordinate with one another would materially reduce their negotiating position.

According to bond documentation specialists at Covenant Review (and contrary to what some syndicate banks have reportedly suggested), this is the first time such explicit language has appeared in a European or US HY deal to explicitly exclude cooperating investors from voting. The concern is that this could set a precedent for the wider HY market. In HY documentation, once a provision is successfully introduced in one transaction, future issuers can point to it as established market practice and investor protection becomes gradually eroded across the wider market.

In light of these developments, the European Leveraged Finance Association (ELFA), a buy-side-only trade association comprising more than 55 institutional European leveraged finance investors, has today published a statement opposing the inclusion of this anti-cooperation provision. The association has said it “encourages members to reject such documentation and reflect this view to both issuers and to syndicate desks in primary market consultation”. This is a position we ourselves had already communicated to syndicate desks earlier in the week.

InPost’s proposed bonds, which are expected to price later this week, therefore represent an important test for the European HY market. It has proved to be a solid business over the last few years, but that should not mean investors must accept weaker documentation. In our opinion, situations like this highlight the importance of due diligence. Being selective and pricing risk appropriately are at the heart of what active managers do, which is why they have been among the most vocal in protecting investors’ rights and pushing back against this provision.