Mevgal to be model for new corporate restructuring system

27 February 2016
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Greek banks appear to have found a way to restructure dairy company Mevgal, which is currently unable to repay its large loans, and to possibly help the northern Greek firm to survive. Mevgal’s management will be taken on by two investment funds that could be awarded a performance-related bonus, while the company’s existing loans will be granted an extension.

Depending on the investment funds’ management of the company, they will collect “success fees,” or a bonus based on Mevgal’s performance. This is a novel system by Greek business standards and forms part of the general mentality prevailing now among local banks: It favors the most efficient and swift management of nonperforming loans, as dictated by the financial climate, via the profound restructuring of enterprises that have a chance at sustainability.

Negotiations with Mevgal are in full swing, according to sources, and detailed announcements could be emerge within the next couple of weeks. There are three main pillars to the model being discussed by the current owners of Mevgal, the crediting banks and investment funds Sankaty Advisors (a Bain Capital subsidiary) and Bartons.

The first pillar provides for the investment funds to take over the management of the dairy company, as well as lend vital cash to Mevgal via a five-year loan.

The second point of the plan dictates that the funds will face specific targets regarding sales and the return of the dairy firm to profits. Meeting them will earn them the success fees, similar to the bonus lawyers secure when winning a court case.

The third pillar rules out the possibility of a debt haircut, but will rather see an improvement in the terms of the existing loans Mevgal has taken out, through the extension of the repayment period. Based on its latest financial report, Mevgal had short-term loan obligations of 68.31 million euros at end-2014.

The aim, according to the same sources, is for operating profits to amount to 20 million euros by the end of the five-year period. The funds argue this is attainable through an increase in the company’s exporting activity, as they claim to have strong access to major British supermarket chains.

Through moves such as that described above, as well as those recently chosen for the restructuring of retail and industrial enterprises in the food sector, local banks are attempting to reach agreements with the candidate buyers of the overindebted companies instead of the lenders themselves undertaking the firms’ management.

That need has stemmed from the rise in bad corporate loans in 2015 and the experience drawn from the restructuring of fish farming companies, where owners would not concede the management to banks.

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