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The French Commercial Court last week approved Smoby’s EUR 178m term loan B holders’ request to seize EUR 15m of inventory, three sources familiar with the matter confirmed. However, the order has not been enforced as of yet and the company is negotiating out-of-court negotiations to repurchase the inventory from the lenders, according to two sources close to the situation.
In November, term loan B holders received pledges on EUR 15m of the French toy company’s inventory in exchange for deferring EUR 7.4m of debt amortization. Calyon, the agent for term loan B succumbed to pressure from other holders of the debt to force compliance with the agreement, said a source close to the company.
The lenders have notified Smoby that it may still access inventory while negotiations continue despite the court order to block its warehouses, according to the sources. The two sides are looking for a friendly solution, said the source close to the company, adding that Smoby’s likely acquirer, MGA Entertainment, would finance the inventory purchase.
The EUR 15m could point to further upside for lenders, said a source close to the lenders. Payment for the inventory would show additional commitment from MGA to the Smoby transaction.
The exclusivity period for MGA’s purchase expires tomorrow, said the source close to the company. As previously reported, the US-based toy maker has proposed to buy Smoby in a EUR 200m deal. Smoby’s family shareholders have already agreed to sell their 52% for a nominal EUR 1, said the source close to the company. MGA, backed by HSBC, has provided Smoby with a EUR 29m loan for working capital purposes, the source added. That facility has not been drawn down, as the French toy manufacturer still has some cash, he explained.
MGA is negotiating directly with all of Smoby’s lenders, two sources said. Alongside those negotiations, the lenders will also meet with Smoby ahead of a forthcoming Safeguard hearing, according to the two sources. Smoby will also meet separately with its suppliers, the first source said.
A court hearing in front of the Safeguard judge is due sometime this week week, but is likely to be rescheduled for early next week due to French national holidays, the first source said. At the meeting a definitive proposal will be presented to the court and to lenders, the judge will then decide how much time is needed for a consensual deal, explained the source close to the lenders.
If the lenders fail to agree on the plan, the court could impose a ten-year rescheduling of the debt amortisation, a number of sources previously noted. However, the debt rescheduling can only be imposed if Smoby is able to demonstrate that it is able to continue to operate, said one source previously. Smoby entered into French Safeguard insolvency protection on 19 March. We intend to emerge from Safeguard by the end of June, said the source close to the company.
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