Atos Crisis Nears End With Creditors’ €2.9 Billion Debt Swap

(Bloomberg) — Atos SE’s creditors are set to take control of the embattled French IT services provider, following a months-long battle over the future of a company once hailed as the rising star of the country’s tech industry.

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Bondholders and lenders have agreed to convert €2.9 billion ($3.1 billion) of loans and bonds into equity, provide as much as €1.68 billion of new debt and to inject €233 million in new equity, either themselves or alongside a private industrial investor, the company said in a statement on Sunday.

Atos asked creditors to leave the door open to an anchor investor for the equity injection, according to people with knowledge of the matter, who asked not to be identified because the talks are private. Representatives for Atos declined to comment.

The agreement marks a pivotal moment in the long-running saga to save the sprawling IT giant that’s a key supplier to both the French nuclear industry and the Olympic Games. Supply chain constraints, accounting errors, profit warnings and industry-wide headwinds have wiped out nearly €12 billion of the company’s market value over the past seven years, and with a wall of debt coming due, Atos has been under acute pressure to find a solution.

By doing the deal on their own, the debt holders participating in the new debt stand to benefit more from the economics of the deal. While existing shareholders’ equity will be worth close to zero as a result of the restructuring, it does remove uncertainty over the company’s fate after David Layani’s Onepoint, Atos’s biggest investor, walked away from an agreement last week.

Creditors signing the lock-up agreement by July 12 will receive a 50 basis-point fee.

“With this agreement, the Atos group should put an end to the suspense, with the exception of the identity of a possible reference investor,” wrote Alexandre Plaud, an analyst at CIC Market Solutions, in a note to investors after the news. While the dilution will be “massive,” the company should be able to return to a level of debt that will help it reach its target credit profile, and “it will then be able to start rebuilding,” he said.

Atos bonds due 2025 briefly rose over 1.5 cents in Monday morning trading, before paring gains. They remain deep in distressed territory, trading at just under 12 cents on the euro.

When it has enough support from creditors, Atos will ask a commercial court to open an accelerated safeguard to approve the restructuring. This court process allows the company to overrule dissenting stakeholders as long as it meets certain conditions.

The creditor group also said they would reexamine a deal to sell part of the company’s big data and security unit to the French state. The process will determine whether “the purchase price is reflecting a fair market value and is consistent with the corporate interest of the company.” If not, the company will terminate the sale, it said.

The French government offered €700 million, including debt, for the strategic parts of the unit, known as BDS, earlier in June in a non-binding bid. Those include Atos’s supercomputers, “mission-critical” systems and cybersecurity activities. In April, the government had said the assets could be worth as much as €1 billion.

Atos started negotiations with its creditors under the supervision of a court-appointed mediator in early February to restructure its €4.85 billion debt pile. The company needed not only to reduce its debt burden but also an equity injection, and two bidders with different views on how to rescue Atos emerged early on: Onepoint — a smaller French IT firm that is the largest shareholder of Atos — and Daniel Kretinsky’s EPEI.

Layani’s “One Atos” proposal was pitched as a way to help the company avoid a breakup and remain under French ownership, and it also promised a smaller haircut for debtholders. Kretinsky’s bid, on the other hand, had targeted a more radical debt reduction and suggested selling off the company’s digital business.

While Layani’s proposal beat out Kretinsky’s bid, the French entrepreneur backed away last week following further due diligence. That left creditors having to decide whether to reopen talks with Kretinsky — who had offered to step in again — or do a deal on their own.

Here are some details of the agreement:

–With assistance from Alexandra Muller and Jenny Che.

(Updates with write thru, new nut graf)