The loan is likely to have a tenor of less than three years and carry interest in high teens.
“The new loan is expected to be raised at a significantly higher interest rate, around 17-18%, compared with prepayments from Oaktree and Trafigura, which were below 13%,” said a source. “This new financing would be utilised for the prepayment of 55% of the 13.875% bonds due in 2024, 5% of the 6.125% bonds maturing in August 2024, and 20% of the 8.95% bonds set to mature in March 2025.”The potential financing package would be lower at $1 billion and $1.1 billion secured against the brand fee receivables for the next three years. India-listed Vedanta has been paying management and brand fees to VRL. In April 2023, the local company raised these fees from 2% to 3% of revenue, providing VRL around $410 million in upfront fees for FY24.
Spokespersons for Cerberus, Varde and Vedanta did not respond to requests for comment. While Vedanta initially proposed a loan size of $1.2 billion, private credit funds and lenders have lowered it to a $1.1-billion deal. While certain bondholders have expressed their intent to move forward with an upfront payment of $550 million by January 2024, another $100 million paid as consent fees, accounting for 65% of the bond’s overall value, negotiations are going on between the company and the bondholders on the final restructuring terms under the liability management exercise.
Lenders expect pricing to be in the high teens and are working on the terms of the proposed loan.
The proposed loan is set to be supported by brand fee receivables. The company has offered upfront payments of 55% for January 2024 bonds, 5% for August 2020 bonds, and 20% for March 2025 bonds. However, bondholders are divided, with some asking for increased payments, particularly when with rising consent fees, pushing the payout for January 2024 bonds to 65 cents.
Also, a consent fee of 3%, roughly amounting to $100 million, is being offered as part of the restructuring, with restructured bonds expected to carry a 14% interest rate and collateral in the range of 75% to 200%, the source added.
The restructuring and new loan issuance come at a time when the interest rate cycle is approaching its peak, raising concerns about the high cost of restructured bonds.