Motorbike Maker KTM’s Lenders Take 70% Hit in Restructuring

(Bloomberg) — Creditors of Austrian motorcycle maker KTM AG have approved a restructuring plan that will write off 70% of what they’re owed. The company now has three months to secure about €800 million ($840 million) of cash to finance the turnaround.

Citigroup Inc. is leading the fundraising effort and KTM parent Pierer Mobility has reported interest from several potential investors last month. 

Management has spent the last three months since KTM filed for insolvency trying to convince creditors that the company-led plan proposing a 30% payout, job cuts and a temporary production halt is a better option than bankruptcy. 

The company built by entrepreneur Stefan Pierer filed for insolvency after struggling to navigate the volatile demand for its motorbikes after the Covid-19 pandemic, leading to excessive inventories. It’s become the most prominent victim of headwinds to Austria’s ailing industry from rising energy and labor costs, risking thousands of jobs.

A group of banks hired Houlihan Lokey — an investment bank well-versed in creditor disputes — to advise on the insolvency. Hedge fund Whitebox Advisors put forward a restructuring proposal of its own, saying the company’s proposal represented an unfair transfer of value from creditors to shareholders.

Had creditors voted against the company’s plan, KTM likely would have ended up in liquidation proceedings with a risk of even lower creditor recoveries. 

“We have achieved a significant step toward saving the company,” the APA news service cited insolvency administrator Peter Vogl as saying. One large creditor and some smaller ones opposed the plan, which had the backing of about 90% of total claims, he said.

Shares of Pierer Mobility rallied 15% in Zurich after the announcement.

As a condition to the deal, KTM now needs to secure €100 million of funding by the end of March to resume production. That’s on top of the €50 million put forward by Indian co-owner Bajaj Auto for immediate operating costs.

KTM also needs to transfer €548 million to the insolvency administrator by May 23 to pay creditors the 30% cash quota. About €2 billion of insolvency claims have been recognized by the administrator, the creditor association KSV1870 said in a statement.

Further amounts are due related to separate insolvencies at other Pierer Mobility units.

Among the potential investors is Austrian entrepreneur Stephan Zoechling, who indicated his intention to provide financing in an interview with the Trend magazine and has been appointed to Pierer Mobility’s supervisory board. He has a track record of betting on special situations, including the buyout of exhaust-pipe maker Remus, and purchasing the European assets of sanctioned Russian lender Sberbank.

–With assistance from Allegra Catelli.

(Updates throughout.)

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