Q-Cells bondholders agree debt-for-equity swap deal

01 Feb 2012

Major bondholders of the troubled solar company will own 95% of a nearly debt-free enterprise – provided that existing shareholders agree.

Q-Cells, the photovoltaic cell and solar system company that has been battling a volatile market, executive resignations and restless investors, has agreed a debt-for-equity restructuring with major creditors that could save it from bankruptcy.

Rated as the world’s largest manufacturer of solar cells as recently as 2007, Q-Cells has been under pressure ever since it embarked on a major capacity expansion just as demand slumped in 2008, and the company has been working to come up with a viable restructuring plan over the past 18 months.

It is scheduled to make a convertible bond repayment of around €200 million by the end of February, with further payments of €247 million in May 2014 and €129 million in October 2015 due.

Initially Q-Cells had sought to defer the maturity of the February 2012 bond until the end of the year through the appointment of a joint representative – attorney Carlos Mack. However, the Frankfurt Regional Court ruled last week that such a move would not be legally effective.

That ruling appeared to push matters to a head, and just a day later the cell maker released details of a restructuring plan arrived at after “intensive negotiations” with creditors. It detailed a two-step process calling for partial repayment of the bond due this month in tranches, followed by a debt-to-equity swap.

However, that plan has now been ditched too – with the bondholders appearing to force the hand of Q-Cells’ management. The new agreement calls for a restructure all three convertible bonds in a single transaction, thus eliminating the additional risk and uncertainty that would accompany the two-step plan.

Shareholder approval needed
The new agreement will see the bondholders become shareholders with a collective holding of “at least” 95% of the company’s issued share capital, while on successful completion of the debt-for-equity swap the 2012 bondholders will receive a €20 million cash payment.

And that’s not all. It now appears that Q-Cells will be selling off non-core assets worth up to €200 million, with all bondholders in line for a further cash payment upon the consummation of any such deal.

If the proposed restructuring does go through, it should leave Q-Cells as a largely debt-free and potentially much more competitive player in the solar market – and with just over €300 million in liquid funds to cope with further losses and investment expected in 2012, ahead of a modest return to profitability from 2013 onwards.

Its strategy will be to offer premium PV “solutions” (i.e. PV systems rather than cells and modules), a move designed to set it apart from Chinese rivals who are able to offer much cheaper PV products.

However, the entire agreement is subject to the approval of existing Q-Cells shareholders, with the company required to arrange an extraordinary general meeting to gain their assent. If that is achieved, the full restructure should be implemented in the second half of the year.

• Shares in Q-Cells soared by close to 50% following the announcement of the agreement in principle with the company’s bondholders – although that still only equates to a market capitalization of just over €70 million, for a company with annual revenues in the region of €1 billion.