Global Lenders Eye Turkey’s Cash-Strapped Companies

Welcome to . It’s Selcuk GokolukLibby Cherry in London, where we have been looking at Turkish companies seeking a way back to dollar bonds and loans. We also have news on the legal battle around Serta Simmons, the troubles for the owner of the Telegraph newspaper and Coinbase. Follow this link to subscribe. Send us feedback and tips at [email protected] or Tweet/DM to @selcukgokoluk

Reasons to Celebrate

Turkish companies have been shut out of international bond markets for years because of President Recep Tayyip Erdogan’s commitment to low interest rates despite rising inflation. But with Erdogan seemingly ready to ditch his unorthodox economic policies, they may have reasons to celebrate.

Markets have become more optimistic since the newly re-elected Erdogan chose as finance minister a former Merrill Lynch strategist, Mehmet Simsek, who has pledged to design a “credible program” for the Turkish economy. Corporate bonds have returned 2.6% this month, placing them among the best-performing assets out of 40 nations, according to data compiled by Bloomberg.

For investors, the costs are still much higher compared with other emerging markets as there’s plenty of skepticism he will follow through with a more mainstream economic approach. But if he does, it would ease the pressure on plenty of Turkish businesses.

International lenders with an appetite for risk had been looking to get involved in Turkey even before Simsek’s appointment. Take , for example, a Hong Kong-based investor in high-yield debt as well as private credit.

“Not everyone has access to international financing, or to a strong banking relationship,” said Berkay Oncel, SC Lowy’s head of investments for the Middle East, North Africa and Turkey, who is looking at deals worth $10 million to $100 million. “If a private credit market were to develop in Turkey it would be a very welcome addition in the toolbox.”

Similarly, BlueBay’s emerging markets illiquid credit team is looking to lend to companies that operate critical assets such as hospitals, airports and renewable-energy plants.

As a result of the country’s policies, financing in Turkey is highly stratified. Smaller businesses benefit from government-subsidized lending, while mid-sized companies struggle to borrow. And among big corporations, only state-owned TC Ziraat Bankasi and brewer Anadolu Efes have managed to sell debt in the international market since 2021, as Bloomberg data show.

The private market is still nascent. The Global Private Capital Association, which represents investment firms, says it hasn’t tracked a private debt deal in Turkey since 2017.

The central bank tightly credit, channeling lending toward certain sectors that earn foreign currencies, such as manufacturing and tourism, by imposing reserve requirements. 

In public markets, the yield premium over US Treasuries that investors demand on Turkish corporate bonds has fallen to about 481 basis points since Simsek’s appointment from more than 700 basis points a few weeks earlier. While the spread is well below its five-year average, it’s still elevated compared with the emerging market average at 361 basis points, according to a Bloomberg index. 

Turkish companies that have been priced out of international bond markets may decide to tap newly receptive private lenders. “Sometimes it makes sense for these corporates to borrow more expensively for a shorter period of time and for smaller amounts in private credit,” said Mihai Florian, a senior portfolio manager at BlueBay.

High Alert

• A pair of bills that threatened to upend the restructuring process for developing-nation bonds stalled in the New York state house. State politicians are poised to end their 2023 legislative session without voting on proposed measures that aimed to cap the amount of money private creditors would receive from governments when re-negotiating debts.
• Holders of  $1.2 billion term loan and their advisers are weighing options including negotiating with the company for an amendment, litigating or attempting to seize collateral after the company missed an interest payment on the debt. The Indian education-technology company and its lenders are mired in a fight over the term loan after the firm breached terms of its debt agreement. 
• Billionaire Xavier Niel, banker Mathieu Pigasse and retail entrepreneur Moez-Alexandre Zouariworking on a proposed equity injection and a potential debt restructuring dealCasino Guichard-Perrachon’s stakeholders. The trio announced their interest after the end of exclusive talks between the French retailer and , a start-up in which they are invested. The offer could pit them against Czech billionaire Daniel Kretinsky, who has made a separate offer for Casino. 
• Shares in soared more than 50% on Thursday after the struggling company said its operations are improving in the second quarter. Shares have rallied 411% this year, handing losses to short sellers that wagered against the used-car retailer. The company cancelled a debt exchange offer last week after investors including came together to oppose the deal. 
• Gaming operator Lucky Bucksfiled for Chapter 11 bankruptcy in Delaware, listing liabilities up to ten times the amount of its assets. 
• For more on how botched liability management deals are complicating bankruptcies, listen to the latest Credit Edge podcast.

The Latest on… Creditor Brawls

A long-running dispute over a controversial debt deal from Serta Simmons was finally resolved this week in a decision that’s likely to have sweeping implications for future creditor brawls, Amelia Pollard writes

The mattress maker’s 2020 restructuring, in which a group of lenders gave the company $200 million of new money in exchange for a better position in the repayment line, was largely blessed by US Bankruptcy JudgeDavid R. Jones. He ruled the deal was done in good faith and didn’t breach the original credit agreement. 

Jones went on to weigh in on the risks of these sorts of deals — sometimes called “violence” in the industry but dubbed “position enhancement transactions” by the judge — for any Wall Street firms considering them.  

“Sophisticated financial titans engaged in a winner-take-all battle,” Jones wrote in the opinion. “There was a winner and a loser. Such an outcome was not only foreseeable, it is the only correct result. The risk of loss is a check on unrestrained behavior.”

Jones also noted that both sides of the fight knew the company’s original credit agreement had loose documents that made controversial lending moves easier. He said the whole situation could have been avoided with an extra sentence that closed that legal gap. 

But “they did not,” he added. “And this litigation ends with each party receiving the bargain they struck — not the one they hoped to get.”

Notes From the Brink 

One of the UK’s wealthiest and best-known dynasties is in a battle to retain control of the Telegraph Media Group bank considers forcing a sale of the paper to recover debts, Lucca De Paoli reports

Barclay family bought the newspaper, an influential publication in the UK, in 2004 but family members were removed as directors of the publication this week. Lloyds is attempting to recover on a loan to an offshore holding company near the top of the family’s business empire, and appointed AlixPartnersreceivers to consider options including a sale

The Barclay twins, David and Frederick, built a fortune that turned them into one of the richest families in the UK by acquiring hotels, retail businesses and publications. A very private family, they purchased an island in the English Channel in 1993. David died in 2021, with his sons taking on much of the day-to-day management of the family business.

Relations between the owners of Telegraph and its lender have deteriorated recently, with Lloyds increasingly frustrated by the lack of progress around repayment of the debt, according to a person familiar with the matter. The Telegraph had a subscriber base of more than 730,000 at the start of the year, and remains a prominent voice on the right of UK politics. 

By the Numbers

Bonds linked to Coinbase dropped back into distressed territory this week after the US Securities and Exchange Commission accused the crypto exchange — the biggest in the US — of flouting securities rules for years, Jeremy Hill reports. The company’s 3.375% bonds due 2028 dropped as much as 9.25 cents on the dollar to 55 cents the day the SEC filed a lawsuit against Coinbase, but quickly regained some ground. The notes still yield more than 14% and carry a risk premium indicative of distress. 

More From the Terminal and Bloomberg Law

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• Radiology Partners’s Lenders Seek Counsel as Debt Wall Looms
• Sears Hometown Entity Faces Antitrust Suit Over Missouri Retailer
• Savills Appointed to Sell Seized $271 Million Hong Kong Mansion

Thank you for reading , Bloomberg’s twice-weekly newsletter on corporate crisis and distressed debt. Contact the author of today’s issue via email at [email protected] or Tweet/DM to @selcukgokoluk

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— With assistance by Amelia Pollard, Lucca De Paoli, Jeremy Hill, Claire Boston and Neil Callanan