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Inside Out: Avia Solutions Bond Issuance

Inside Out: Avia Solutions Bond Issuance

Lithuania
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On December 12, 2019, CEE Legal Matters reported that Dentons, Magnusson, and TGS Baltic had advised the Avia Solutions group – a Lithuanian aviation services group – on a five-year bond issuance with a total value of USD 300 million, an annual interest rate of 7.875%, and a maturity date of 2024. The bonds were issued in US dollars and distributed in the US and European markets. White & Case and Sorainen helped JP Morgan and BNP Paribas organize the issuance.

We spoke to Dentons’ Partner Cameron Half, who (along with Partner Nick Hayday) led his firm’s team, about the deal.

CEELM: How did you become involved in this matter? Why and when were you selected as external counsel to Avia Solutions initially?

Cameron: We were invited to participate in a competitive pitch process against eight to ten other international law firms, based on the strength of our capital markets team (particularly in CEE) and our geographic focus. [Avia Solutions] also had previous contact with some current Dentons partners.  The final selection was made following a number of meetings between our core team for the transaction, the company, and its financial advisors. The final selection was based on our team’s substantive offering and the overall fit between our team and approach and ASG’s requirements as well as Dentons’ expertise in the aviation sector, including on a number of EMEA capital markets transactions.

CEELM: What, exactly, was the initial mandate when you were retained for this project, at the very beginning?

Cameron: As US and English counsel on a high yield bond offering, our overall scope of work was largely as we had anticipated.  However, at the outset of work none of the parties to the transaction truly anticipated the number of acquisitions and resulting complexity of financial disclosure.  In the end, the offering memorandum included five separate sets of financial statements and five distinct components to the business and financial disclosure, which was one of the most complex presentations that we have seen.  Through the breadth of the Dentons offering, we were also able to advise a guarantor on corporate matters in connection with the bond, as well as to provide specialist advice on matters that arose in the course of due diligence.

CEELM: Who was on your team, and what were their individual responsibilities?

Cameron: Our team was led jointly by me and Nick Hayday, a London-based capital markets partner.  We worked with associates in our capital markets team in London, with support from our US-based US tax and sanctions and trade policy lawyers.  We also involved associates in our Scottish offices to assist on various aspects of the transaction, particularly managing and conducting the due diligence process across the complex and multi-jurisdictional group structure and to help coordinate our work on diligence and disclosure with the TGS Baltic and Magnusson teams.

CEELM: Please describe the final agreements with all parties in as much detail as possible.

Cameron: The transaction was documented as a Eurobond with high yield covenants, with an English-law trust deed structure, listed on Euronext Dublin’s Global Exchange Market.  The notes were issued by ASG Finance Designated Activity Company, an Ireland-incorporated finance vehicle for the group, and guaranteed by Avia Solutions Group (CY) plc, AviaAM Leasing AB, Baltic Ground Services UAB, Chapman Freeborn Holdings Limited, FL Technics UAB, and SIA Smart Aviation Holdings. The listing reflected practice in the Eurobond market, with GEM chosen as the appropriate market in light of the complex financial disclosure.  As US and English counsel to the issuer and guarantors, Dentons led advice to the company throughout the process, including negotiation of the transaction documentation and drafting of the offering memorandum, delivery of customary legal opinions, and coordinating the listing.

CEELM: What’s the current status of the issuance?

Cameron: The transaction was completed on December 3, 2019.

CEELM: What was the most challenging or frustrating part of the process?

Cameron: The most challenging part of the process was the complexity of the group structure and the timing of the acquisitions in relation to the bond issuance.  As ASG only completed the acquisition of AviaAM Leasing, Chapman Freeborn Holdings, and SIA Smart Aviation Holdings (in turn a holding company for two ACMI, or aircraft, crew, maintenance and insurance, operators, Smartlynx and Avion Express) in October 2019, there were a number of complex accounting, disclosure, and diligence matters arising until quite late in the process, for which we and the other transaction participants were required to find solutions on a “real time” basis.

CEELM: Was there any part of the process that was unusually or unexpectedly easy?

Cameron: The ASG team was very focused on completing the transaction in 2019 before the 1H2019 accounts went “stale” for a Rule 144A offering. They kept an open dialogue with us and other working group participants to ensure that any matters within their control were quickly raised and resolved.

CEELM: Did the final result match your initial mandate, or did it change somehow from what was initially anticipated?

Cameron: Based on the successful completion of the bond offering, we believe that this aligned with our initial mandate.  The process by which we got there was however somewhat more complicated!

CEELM: What specific individuals at Avia Solution directed you?

Cameron: We worked most closely with Vladas Bagavicius (Adviser to the Chairman), Aurimas Sanikovas (CFO), Ricardas Laukaitis (Deputy CEO), and Ronaldas Kontautas (Legal).

CEELM: How were the responsibilities divided between Dentons, Magnusson, and TGS Baltic on this matter? How did the firms coordinate/communicate/collaborate?

Cameron: As US and English counsel to the issuer and guarantors, Dentons led advice to the company throughout the process, including negotiation of the transaction documentation, drafting of the offering memorandum, and coordinating the listing.  The TGS and Magnusson teams were responsible for advising the guarantors (other than Chapman Freeborn, which is incorporated in England and Wales and was advised by Dentons) as to provision of the guarantees and entry into the transaction documentation, as well as conducting due diligence on the portion of the business in the relevant jurisdictions.

CEELM: How would you describe the working relationship with Sorainen and White & Case on the issuance?

Cameron: We have a very good working relationship with the White & Case team, both as a firm and individuals. Most day-to-day discussions were by telephone and email, with in person diligence sessions at ASG’s headquarters in Vilnius.

CEELM: How would you describe the significance of the deal to the Baltics and/or CEE in general?

Cameron: This was a ground-breaking transaction for the Baltic region. It was the first high-profile debt offering by a fast-growing pan-European Baltics-based business, and will fund the further growth and expansion of the group’s operations. The offering structure demonstrated investor support for complex issuances by growing businesses from the region, as well as the sophistication of the Group’s management.

This Article was originally published in Issue 7.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

 

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