Vol 2 (2005) - Issue 2

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The Restructuring of MyTravel Group Plc

The background: the offers made to the bondholders

MyTravel Group plc (‘MyTravel’) is the holding company of a group of operating companies incorporated in the UK, other northern European countries and in North America. The companies provide leisure travel services.

The group’s activities are subject to regulation by the Civil Aviation Authority (‘CAA’) that licences the tour operating companies and the airlines. The CAA requires, among other things, the group to meet certain financial obligations and can revoke or suspend licences if the obligations are not met. The group had been in financial difficulties for some time and during 2004 it became clear that the CAA was likely to suspend or revoke the group’s licences if MyTravel did not restructure its balance sheet. If the licences were revoked then the board believed that it would have no option but to seek the appointment of an administrator or liquidator.

Therefore, at its annual general meeting in March 2004, the board of MyTravel announced its intention to restructure its balance sheet. The key feature of the restructuring was the conversion into equity of MyTravel’s unsecured debt of some GBP 800 million.

MyTravel proposed, on the completion of the restructuring, to issue new shares representing 88% of its enlarged share capital to its principal lenders and to issue new shares representing 8% of that share capital to its bondholders. The existing shareholders would retain 4% of MyTravel’s enlarged share capital. The terms of the consensual restructuring offered by MyTravel took into account the amounts that creditors would receive in a liquidation save that the 8% offered to the bondholders approximated to the amount they would receive if they were treated as unsubordinated creditors in a liquidation: i.e. if the terms subordinating the bonds in a liquidation were disregarded.

Pursuant to this proposed restructuring, on 13 October 2004, MyTravel announced an offer to the bondholders of 8% of its enlarged equity in return for them giving up their GBP 216 million debt claim altogether. They were also offered interest on their bonds accrued up to and including 29 September 2004.
The bondholders’ interests on this occasion were represented by an Ad Hoc Committee, the members of which were Fidelity Investments International, Société Generale Asset Management, Lehman Brothers and New Star Asset Management Ltd, who, together with others who gave their support, claimed to control voting rights in respect of some 75% of the outstanding bonds. Following MyTravel’s announcement the Ad Hoc Committee indicated that they would reject the terms of the proposed consensual restructuring.

The Ad Hoc Committee was of the view that the proposed consensual restructuring did not reflect their interest in MyTravel as a going-concern, which it would be post-restructuring. It was, they said, obvious that the percentage of equity that MyTravel proposed to allocate to them did not reflect their existing and prospective interests in the debt of MyTravel: they relied on their calculation that their share of MyTravel’s debt was some 27% and made the point that their share of the enlarged equity should be commensurate with this percentage.
While MyTravel’s preference was to implement the restructuring on a consensual basis, it prepared a contingency plan in the event that agreement could not be reached with the bondholders. MyTravel therefore initiated court proceedings to implement the restructuring by way of a scheme of arrangement that would not require the approval of the bondholders on the basis that they would receive nothing were MyTravel to be put into liquidation. The court hearings that took place in November and December are described below.

The proposed scheme involved the creation by MyTravel of a new holding company (‘Newco’) and the transfer of the assets to Newco. Newco would issue shares to existing shareholders and to the creditors whose debts would be converted to equity as in the consensual restructuring proposal. Newco would assume responsibility for payment of most liabilities of MyTravel, including trade creditors. Those liabilities that would be subordinated on a liquidation, such as the obligations to the bondholders, would be left behind with MyTravel.