Ascendis will spend R290m – more than its market cap – on recapitalisation

Ascendis Health, which is labouring under a mountain of around R7 billion in debt, will spend approximately R258 million on fees for its recapitalisation transaction according to the transaction circular published on Friday. Add two disposals which are linked to the recapitalisation plan, and the fees will top R290 million.

The group currently has a market value of just R274.1 million.

Of the R258 million, R110.5 million will be paid to Akin Gump, the UK legal advisors to the forbearance creditors. Acsendis Health’s legal advisors, Allen & Overy, will be paid nearly R57 million, while deal advisor Rothschild will be paid R33.6 million.

These three fees together comprise almost 80% of the total fees for the recapitalisation transaction.

There are a further six legal advisors to the forbearance creditors in Luxembourg, Malta, Spain, Cyprus and Romania who will be paid a total of R8.2 million.

Its legal advisors in South Africa, Cliffe Dekker Hofmeyr, will be paid R6.25 million. PwC and EY are also involved as independent reporting accountant and transaction tax advisor, respectively. The latter also performed some due diligence work for the lenders.

Grant Thornton and Matuson & Associates were involved in preparing a fallback scenario and will be paid a total of around R4 million for this.

The group says “It is a term of the senior facilities agreement and the restructuring support agreement, that the group covers the costs incurred by participating lenders in relation to the group recapitalisation transaction. This is in line with market practice for debt transactions.”

Two disposals, of Respiratory Care Africa (RCA) and the Animal Health unit, which are linked to the restructuring will cost the group R9.3 million and R23 million, respectively.

Listen to Simon Brown’s MoneywebNOW interview on Ascendis with small-cap analyst Anthony Clarke (or read the transcript here):  

Rothschilds are the deal advisor for the former (R4.1 million), with Absa fulfilling this role on the latter transaction (R7.8 million). ENSafrica is the legal advisor on both, for which they will be paid a total of R10.7 million. PwC as independent reporting accountant on both transactions will bill around R4.2 million.

At the end of December, the group had net debt of R6.9 billion, of which R6.4 billion was euro- and rand-denominated senior debt. Total financing costs in the 18 months to end-December was R1.4 billion.

In those same 18 months, the group had already spent R379 million on transaction-related and restructuring costs. Debt/capital restructuring costs comprise the bulk of this at R196 million.

Astonishingly, CEO Mark Sardi and CFO Cheryl-Jane Kujenga will be awarded a total of R21 million in retention bonuses.

The transaction circular says, “Retaining key resources is critical to the successful completion of the recapitalisation transaction and the delivery of the post-recapitalisation strategy.” It highlights two specific risks, being that “experienced executives and skilled staff are in high demand both locally and internationally” and the “loss of key people and challenge of retaining staff in [the] current climate of uncertainty and change within the group”.

To mitigate these risks, Ascendis says it has a “management incentive plan to retain and incentivise key staff and executives, including the CEO and CFO” and that it will pay “short-term retention awards for selected head office employees and participating business units”.

The management incentive plan has been “established as a mechanism to incentivise and retain key executives for the 24 months subsequent to the implementation of the group recapitalisation transaction”.

There are certain criteria, especially regarding deadlines for the completion of various parts of this transaction, and if these are met, the payment of the awards to Sardi and Kujenga will be as follows: 50% on completion of the group recapitalisation transaction; and a further 25% on each of the 12-month and 24-month anniversaries of the transaction.

The general meeting for shareholders to vote on these three transactions will take place on October 4.