International Company Turnaround - Solidal Conductores Electricos, S.A.
Vince Harris, AlixPartners
Arvid Trolle, Njord Partners LLP
Francois Moufflet, EY / Solidal
Mark Veldon, AlixPartners
Karen McMaster, Milbank
David Dinis, Uría Menéndez
Nuno Nogueira da Silva, EY
Stewart Higginson, Njord Partners
About the Turnaround:
Founded 50 years ago, Solidal is a leading power cable manufacturer with a production facility north of Porto, Portugal. It supplies cables to transmission and distribution companies, contractors, and wholesalers around the world. Its products span a broad range of the grid requirements in low voltage (1kV), medium voltage (6kV-36kV), and high voltage (45kV-220kV).
Under ownership of the Quintas Group, Solidal had carried an overleveraged balance sheet since early 2000 when a series of investments in Brazil and Angola collapsed. It also sustained a bloated cost structure, with excessive layers of management and onerous remuneration of the supervisory board.
In early 2018, persistent payment delays to suppliers led to the removal of credit insurance. The lack of liquidity, with no financial support from the banks, hampered raw materials purchases, and production progressively dwindled to a crawl. The company missed payroll for its 363 employees in July 2018 and was on the verge of insolvency when its senior creditor, Njord Partners, approached the controlling shareholders to negotiate terms of a rescue financing.
The financing and change of control (led by Njord Partners and supported by Milbank and Uria) was achieved via a consensual restructuring with shareholders. This involved a series of complex transactions lasting through December 2019, including bridge financing, a COMI shift of the Luxembourg Holdco (the senior debt borrower), the appointment of English administrators at the Holdco, an open market sale process and credit bid (one of the first Portuguese cross-border restructurings of this kind), the seminal use of the Portuguese RERE (Regime de Recuperação Especial de Empresas) procedure for restructuring approximately €28 million of local sale/leaseback and revolving facilities, and the consensual restructuring of another approximately €16 million of bank facilities and factoring lines in Spain and Portugal.
From late 2018, Njord Partners implemented rigorous liquidity management procedures with the support of EY in a CRO role. Njord Partners and the CRO team engaged and stabilized their relationships with and regained the confidence of key stakeholders, including clients, suppliers, workers, and lenders. This entailed a road show with key utilities customers to stem the cancellation of framework contracts which had been in default. These actions preserved the vast majority of the orderbook intact, allowing production to catch up and delayed orders to be eliminated over the course of four months. In parallel, a number of operational initiatives were implemented. AlixPartners was appointed to develop new procedures around sales and operations planning (S&OP) procedures and the supply chain. The largely Excel-based purchasing was upgraded to MRP in SAP. Furthermore, the reception, stocking, and management of raw materials was devolved from production to a new Incoming materials function within the logistics function.
The supervisory board was dissolved and a new management team was formed. Njord Partners appointed the acting CRO, Francois Moufflet, as the new CEO. In turn, he recruited a new director of production and created the position of supply chain director.
Recurring EBITDA in 2019 was €5 million compared to €22.9 million in 2018. The company’s backlog is at its highest historical level, at about four months of sales.