Negotiations with lenders to restructure the group have proved fraught and complex
AT 5.30am yesterday Anglo Irish Bank dispatched 87 people to Cavan and Fermanagh with demand notices for the repayment of more than 20 overdue and expired loans. The loans covered some of €2.88 billion of debt owing by the Quinn family.
They included legal and financial representatives, security staff and drivers. The demand notices kick-started a sequence of well-choreographed moves that begin one of the biggest and most complex corporate restructurings (outside banking) in Irish history.
The Quinn Group’s problem was that it had too much debt, which was exacerbated by the fact that the Quinn family had too much debt on top of that.
The group owes €1.3 billion to a group of banks and bondholders, while the family owes €2.88 billion to Anglo primarily over Seán Quinn’s spectacular gamble on the bank’s share price that blew up in the 2008 financial crash.
Servicing debts of €4.16 billion was an impossibility when the group made cash earnings of more than €100 million a year and its insurer, Quinn Insurance – the group’s one time profit driver – was in administration over solvency concerns.
With 2,600 jobs at risk in the Quinn Group’s manufacturing businesses covering cement, glass, plastics and radiators, Anglo felt it had to move to protect the businesses and recover some debt.
“We are going to get some money back instead of the potential of this costing the State a huge amount,” said Anglo chief executive Mike Aynsley.
Now businesses and properties stretching from Derrylin, Co Fermanagh, to Hyderabad in India and Ufa in Russia (1,200km east of Moscow) will fall under Anglo’s control. It expects to recoup about €500 million selling properties. The bank has taken provisions against the remaining €2.3 billion, which is covered in Anglo’s €29.3 billion State bailout.
The bank appointed a receiver over Quinn Group (ROI), the Republic of Ireland company sitting at the apex of Quinn’s business empire. This is the shareholding firm owned equally by his son and four daughters.
The receiver was also appointed over Quinn Finance Holdings, which sits at the top of the corporate structure behind the family’s overseas property interests.
The bank took a charge over the family’s shares in Quinn Group (ROI) in 2008 in return for lending heavily to Quinn allowing him to cover his share losses.
Yesterday’s deal has various moving parts that allow the overall restructuring of a complex and interwoven corporate group.
Months of negotiations have taken place with Quinn Group’s lenders, which have swelled in number from debt selling in the markets. One participant said it was “like trying to herd wild cats”.
The restructuring will break the links between Quinn Insurance, the manufacturing businesses and the Quinn property investments. The jobs will be protected. Under the deal trade customers and suppliers can secure insurance again to deal with the group.
The main part of the deal involves the ownership of a new Quinn manufacturing company to be split 75:25 between Anglo and the banks and bondholders.
In return, the banks and bondholders will agree a new five-year loan. A more manageable loan of about €750 million will be moved on to the manufacturing company, while about €550 million will remain with Quinn Group, the Northern Irish operations firm sitting below Quinn Group (ROI).
This debt will be repaid with cash of €80 million and a further €125 million from the disposal of assets, such as the family’s hotels in Cambridge, Sofia and Krakow.
The family’s corporate jet and helicopter will also be sold.
Guarantees worth €464 million provided on assets in Quinn Insurance subsidiaries will be dropped by the banks and bondholders.
The reason why the joint bid from Anglo and US insurer Liberty Mutual for Quinn Insurance was named the preferred option rather than outright buyer was to allow these guarantees to be lifted. The discovery of the guarantees led the Financial Regulator to seek the appointment of administrators in March 2010 as it weakened the insurer’s solvency, putting 1.3 million policyholders at risk.
The next stage in the sequence is the full sale of the insurer by the joint administrators to Anglo-Liberty. Quinn Insurance will be majority owned and controlled by Liberty but Anglo will share half of any potential upturn in the firm.
The insurer will require cash of about €150 million from Anglo and Liberty to boost its reserves. The State’s Insurance Compensation Fund may yet be tapped to cover losses at the insurance company. This may all seem peculiar given that Anglo, a dead bank, itself is being wound down over 10 years. Sources close to the Quinn restructuring say the bank would seek to sell Quinn’s properties over a three-year period and exit the manufacturing and insurance business over three to five years.
The various Quinn companies were yesterday flooded with new independent directors and executives, taking control from Quinn, his family and his executives. Quinn, who started a multibillion business digging gravel out of his family farm 38 years ago, has been shut out.
