Tallinna Moekombinaat’s cooperation with Lintgen – part of the Sixth Street Partners investment banking group – started back in 2016, when a EUR 65 million loan agreement was signed for financing the construction of the T1 Mall of Tallinn, a shopping/entertainment centre.
The mall was opened in autumn 2018 and the cooperation went smoothly. By the mall’s opening, the market situation in Tallinn and beyond had changed, unfortunately, in two main ways: international fashion brands no longer envisioned expansion but rather raising the efficiency of their existing stores’ portfolio, and Estonia had seen the greatest increase in retail space in the Baltics.
As it was not possible to lease out enough of the retail spaces, and the mall performed below forecasts. T1 management notified the lender in spring 2019 of the difficulties, proposing to enter into negotiations to adjust the terms of the loan agreement to better fit the situation.
Lintgen gives Tallinna Moekombinaat a EUR 65 million loan for building T1 Mall of Tallinn.
|2018||The mall is completed in November.|
|2019-2020||For eight months, Lintgen and Tallinna Moekombinaat hold fruitless negotiations on debt restructuring. Lintgen makes unreasonable demands without actually wishing to reach agreement.|
|31.03.2020||Tallinna Moekombinaat files a restructuring petition with Harju County Court.|
|31.03.2020||The principal of the loan from Lintgen has grown to nearly 75.4 million euros (growing by the capitalized loan interest).|
|3.04.2020||Harju County Court launches corporate restructuring proceedings.|
|04.04.2020||In spite of the ongoing restructuring, Lintgen demands repayment of the entire loan amount.|
|7.05.2020||The Tallinna Moekombinaat restructuring plan is ready and is presented to all creditors for comment.|
|18.05.2020||Lintgen announces publicly that it will buy out creditors who oppose the restructuring plan. Most creditors do not accept, instead supporting the restructuring plan and putting their trust in the Tallinna Moekombinaat management.|
|21.05.2020||Lintgen announces publicly that it intends to take
|26.05.2020||A majority of creditors vote in favour of the restructuring plan and the court can now initiate an expert analysis and approve the plan. Under pressure from Lintgen, a few creditors attempt to change their vote.|
|2.06.2020||Tallinna Moekombinaat files the restructuring plan with the court for approval and asks that experts be appointed|
|12.06.2020||The court appoints experts to evaluate the plan.|
|21.06.2020||Lintgen files a bankruptcy petition. The bankruptcy petition is not secured by the court.|
Lintgen introduces Jaan
Lott as the new head of T1 and there is confusion as to who is in at the helm
|22.07.2020||Experts submit their opinions regarding the restructuring plan to the court. Both of the experts say that the restructuring of Tallinna Moekombinaat will likely successful.|
|29.07.2020||The Circuit Court rules that the County Court should have provided more reasoning for the assumptions on which the experts were appointed..|
Harju County Court rules that Tallinna Moekombinaat is permanently
insolvent and ends restructuring proceedings. Tallinna Moekombinaat and three
creditors appeal the ruling. A large number of the other creditors support the
|August 2020||August 2020 Lintgen tries to appoint a trustee in bankruptcy as a member of the board of Tallinna Moekombinaat. Lintgen’s attempt to achieve control of management fails.|
Starting from the launch of restructuring proceedings, Tallinna Moekombinaat manages to meet its obligations and the forecasts set forth in the restructuring plan appear to have been fulfilled.
First cracks in the cooperation
The negotiations went ahead, but Lintgen avoided key topics, making oral promises but not getting to the point of actual discussions. Tallinna Moekombinaat agreed to the lender’s demands to hire various consultants to analyse the mall’s everyday operations, the terms and conditions of the lease agreements and financial reporting, providing all facets of detailed information to the lender. At the same time, the lender reserved the right to cancel the loan agreement at any time and call in the loan, which could have meant the company’s bankruptcy.
The lender’s delay in negotiations deepened T1’s difficulties. In the unclear situation – not knowing whether the terms of the loan could be amended or whether the loan would be called in – it was impossible for Tallinn Moekombinaat to make the investments needed for improving its bottom line.
By summer 2019, Lintgen made no secret about its desire to take over T1 and started headhunting for a new director for T1. In the autumn, still not having agreed to amend the terms and conditions of the loan agreement, Lintgen made a specific demand for transfer of the company’s assets, refusing the proposal to refinance part of the loan and convert part of it to share capital.
Lintgen, although it had a detailed view of the company’s business figures and details of the agreements with tenants, allowed the mall’s situation to go from bad to worse.
Lintgen prepared for the takeover of T1
After eight months of talks, Lintgen made a proposal that Tallinna Moekombinaat found unacceptable. Besides a majority stake, Lintgen sought the possibility to loan money to the mall at even less favourable terms (15% annual interest rate). Tallinna Moekombinaat’s shareholders remained prepared to give up their majority holding to the lender, but they wanted assurances that Lintgen would make the necessary investments into the mall, Moekombinaat’s loan burden would remain reasonable and serviceable and the rights of the minority shareholders would be considered. Unfortunately, Lintgen did not accede to these requests.
For Tallinna Moekombinaat, it was clear that the mall could not manage an increase in the loan burden to EUR 90 million. It was also clear that the lender made the offer solely to achieve a controlling holding, deepen the loan obligations by charging an additional 15% interest, push Tallinna Moekombinaat into bankruptcy and take the mall from the defenceless minority shareholders.
Lintgen deliberately set out conditions that were not acceptable to the management board of Tallinna Moekombinaat.
At the start of spring, with the influence of the pandemic already
increasing, the management board of Tallinna Moekombinaat faced the choice of
submitting a petition for launching restructuring – thereby saving the company
and ensuring that the everyday activities of T1 could continue – or keeping the
centre afloat until it became insolvent and could not continue.
T1 filed a petition for launching restructuring proceedings
In spring 2020, Tallinna Moekombinaat filed a petition for launching
restructuring proceedings with regard to the company.
Why restructuring was more rational than bankruptcy
Restructuring is undertaken for the purpose of saving a company and bankruptcy is for dissolving a company – i.e., restructuring allows a company to be saved and preserved. The decision as to which option is more reasonable is made based on the sustainability and solvency of the company.
As Tallinna Moekombinaat’s business difficulties were temporary and could be overcome if certain measures were applied, the restructuring proceedings are a justified decision that gives T1 Mall of Tallinn tenants, business partners and other creditors a sense of assurance.
Should restructuring be successful, it will also be a greater financial win for creditors than bankruptcy.
|Creditors||Lintgen Adjacent Investments S.à r.l. (total of group I and group II)||Total for all other creditors|
|Claim going into restructuring||Approx EUR 79.8 million||Approx EUR 29.3 million|
|To be paid upon restructuring||Approx EUR 76.5 million||Approx EUR 6.9 million|
|% of original claim||96%||24%|
|Potential amount to be paid in the case of bankruptcy||Approx EUR 46 million||Approx 176,000|
|% of original claim||Approx 58%||Approx 0.6%|
Lintgen’s objective is to acquire T1 for cheap in the course of bankruptcy
Lintgen has publicly said as much.
It is not known whether Lintgen would start operating the mall itself in such a case, but it is not ruled out that Lintgen would turn right around and sell off the centre for a higher price.
In the event of bankruptcy, all other creditors would lose most of their money; disbursements could only be made to Lintgen, the receiver.
The likelihood that the mall could be kept in operation in the event of bankruptcy is tiny, due to which all the tenants would lose their investments, to say nothing of the loss of about 800 jobs.
Lintgen’s opposition does not affect the course of restructuring
Even though Lintgen has voted against the plan, there are about 70
creditors and the opposition of one creditor does not block restructuring.
Tallinna Moekombinaat does not have a difference of opinion with any other
creditor at a level that would hinder carrying out restructuring.
Restructuring of Tallinna Moekombinaat is not taking place in the interests of the owners
Under the restructuring plan, the owners’ claims are subject to the greatest write-off percentage – 80%.
addition, the owners’ reduced claims will be satisfied only after payouts to
all other creditors. This is even though, legally speaking, the owners should
not have written off more than the other unsecured creditors or have their
claim satisfied later than the other creditors.
|© 2020||Tallinna Moekombinaat AS|
Tallinn 11316, Estonia