Wrap Text
Proposed Transaction for the Recapitalisation of Ascendis Health and Further Cautionary Announcement
Ascendis Health Limited
(Registration number 2008/005856/06)
(Incorporated in the Republic of South Africa)
Share code: ASC
ISIN: ZAE000185005
(“Ascendis Health” or “the Company”)
PROPOSED TRANSACTION FOR THE RECAPITALISATION OF ASCENDIS HEALTH AND
FURTHER CAUTIONARY ANNOUNCEMENT
KEY HIGHLIGHTS
• Ascendis Health is pleased to announce that it has entered into a Restructuring Support Agreement with the
Forbearance Creditors to recapitalise and restructure the Group
• The Group Recapitalisation addresses the Group’s unsustainable capital structure and future operational
liquidity requirements, whilst protecting value for all Ascendis stakeholders. The key terms are as follows:
o Participating Senior Lenders will exchange the Group’s outstanding debt, that is expected to be
approximately €447 million at the estimated closing date of the Proposed Transaction, for:
- 100% of the shares in Remedica and Sun Wave
- the 49% shareholding in Farmalider
- the net proceeds from the sale of Animal Health, Biosciences and Respiratory Care Africa
o Ascendis Health will also be provided, by the Participating Senior Lenders, with the following new facilities:
- Access to a new draw down facility in the amount of the ZAR-equivalent of €20 million to fund
future working capital requirements
- A two-year Term Loan in the amount of the ZAR-equivalent of € 15 million, to settle outstanding
and unpaid interest at closing and transaction costs
o Ascendis Health will retain all the businesses within the Medical Devices (excluding RCA), Consumer Health
and Pharma divisions, as well as 50% upside participation on the anticipated future sale of Farmalider
• The Group Recapitalisation is unanimously supported by the Board and is considered better than the original
Divestment Programme, and a potential Business Rescue scenario if an agreement is not achieved
• Once definitive agreements are finalised, an announcement will be published and a circular will be sent to
shareholders setting out full details of the Group Recapitalisation ahead of a general meeting to vote on the
Proposed Transaction
1. INTRODUCTION
Shareholders are referred to the announcements published by the Company on the Securities Exchange News
Service (“SENS”) of the JSE Limited (the “JSE”) on 2 February 2021 and 10 March 2021 in which it announced that
the Company was exploring solutions with Blantyre Capital Limited (“Blantyre”), acting on behalf of the funds
that it advises, and L1 Health GP SARL (“L1 Health”), (collectively, “the Forbearance Creditors”) to recapitalise
and restructure Ascendis Health and its subsidiaries (“the Group”) (“the Group Recapitalisation”) as an
alternative to the Divestment Programme that the Company had previously embarked upon (referred to in
Section 2 below) and in terms of which the Group’s outstanding debt that is expected to approximate €447 million
at the estimated closing date of the Proposed Transaction would be discharged in exchange for interests in the
Company’s operating subsidiaries.
Shareholders were also advised in the announcement of 10 March 2021 that the Forbearance Creditors and ABSA
Bank Limited (in its capacity as agent for the Senior Lenders) had entered into a forbearance agreement with the
Company (“Forbearance Agreement”) to address the Company’s short-term liquidity requirements and other
potential events of default. In terms of the Forbearance Agreement, the Forbearance Creditors agreed not to
take enforcement action in respect of the non-payment of interest and certain other events of default until 30
April 2021 (“Forbearance Period”). On 30 April 2021, the Company announced that discussions with Blantyre
and L1 Health were ongoing and as such, the Forbearance Creditors had agreed to extend the Forbearance Period
until close of business on 11 May 2021.
The board of directors of Ascendis Health (“the Board”) is pleased to announce that the Company has entered
into an agreement with the Forbearance Creditors (“the Restructuring Support Agreement”). The Restructuring
Support Agreement provides a framework for the implementation of the Group Recapitalisation (“the Proposed
Transaction”). The salient terms of the Proposed Transaction are set out in Section 3 below. Subject to certain
events of default, the Restructuring Support Agreement also envisages the extension of the Forbearance Period
up until the implementation of the Proposed Transaction.
The Board has reviewed and approved the principal terms of the Proposed Transaction as set out in the
Restructuring Support Agreement.
2. BACKGROUND TO THE PROPOSED TRANSACTION
Over the past three years, the Board has considered several solutions to reduce the Group’s unsustainable
gearing levels, which arose from debt-funded acquisitions undertaken in 2016 and 2017, and to settle loans
outstanding to a consortium of third-party lenders (“the Senior Lenders”).
The Company and certain subsidiaries entered into an amended and restated Senior Facilities Agreement (“the
SFA”) with the Senior Lender on 5 June 2020 to restructure the Group’s existing debt facilities of R6.9 billion; and
provide for the advance of new debt facilities of R464 million to fund working capital requirements and play a
meaningful role in the country’s efforts to combat the effects and spread of the COVID-19 disease (collectively,
the “Senior Facilities”).
This arrangement enabled the Group to extend the repayment obligations of the Senior Debt to 31 December
2021, with no capital payments required in advance of that date other than repayments triggered as a result of
asset disposals and the repayment of debt using excess cash beyond the Group’s needs. In addition, it enabled
the Group’s management to focus on driving operational performance, while a cash sweeping arrangement
implemented at Group level allowed improved oversight of the governance related to capital allocation.
The cost of extending the Senior Facilities was EURIBOR plus 10% to 14% (4% - 5% related to margin and an
additional 5% to 10% payment in kind (“PIK”) interest charge) on the Euro-denominated facilities and JIBAR plus
10% to 14.2% (3.75% to 5% related to margin and an additional 5% to 10% PIK interest charge) for the South
African Rand-denominated facilities.
Despite a strong half-year performance from the underlying businesses, which generated operating profits from
continuing operations of R368 million for the six months ended 31 December 2020, the Group’s unsustainable
capital structure and cost of funding in the form of PIK interest meant that the total level of debt, including
deferred vendor liabilities, continued to rise. In the six-month reporting period to 31 December 2020, the
proportionate average effective cost of debt was approximately 14.4% and 16.9% for European and South African
denominated facilities, respectively, and the total interest cost for the six-month period was R476 million in
respect of the Senior Facilities and R31 million in respect of the deferred vendor liabilities.
The SFA mandated a divestment programme (the “Divestment Programme”) to facilitate the repayment of the
amount outstanding under the SFA (the “Senior Debt”). This Divestment Programme was aimed at disposing of
all Group assets except for Farmalider, Pharma South Africa and Consumer Health South Africa. Compliance with
the terms of the SFA would have required the successful execution of multiple asset disposals simultaneously.
The sales process was regulated by the SFA, including milestone obligations agreed by the Company with the
Senior Lenders.
Although the Company received indicative offers for Remedica and Sun Wave, they were below the Board’s initial
expectations. In addition, several of the Divestment Programme milestones were not met, resulting in events of
default and an increase in the PIK margin of 2.5% from 31 January 2021. Given the escalating financing costs, and
the indicative offers received for the disposal of certain assets, a sale of all the assets identified for divestment
was unlikely to generate sufficient value to repay the Senior Debt.
On 18 January 2021, Blantyre and L1 Health, as Senior Lenders, advised the Board that they had collectively
increased their Senior Debt exposure to more than one third of the aggregate exposure of all Senior Lenders.
Blantyre and L1 Health subsequently advised the Board on 28 January 2021 that they had increased this exposure
to more than 75%. Under the terms of the SFA, this level of exposure enabled Blantyre and L1 Health to provide
or withhold all waivers, deferrals and consents requiring majority lender approval and thus constituted them
“Majority Lenders” for the purposes of the SFA.
Blantyre and L1 Health communicated that in their view the divestment of core assets was not in the best long-
term interests of the Group and its stakeholders and would not be supported by them in their capacity as Majority
Lenders, whose consent was required for any material disposals. Given the unfavourable disposal dynamics, the
Board acknowledged that the Divestment Programme and associated milestones put the Group at a disadvantage
and terminated the disposal processes of Remedica and Sun Wave.
In parallel with the Divestment Programme, Ascendis Health management conducted an extensive search for
equity-linked and operating company gearing solutions to address Ascendis Health’s unsustainable debt levels
and repayment of the Senior Debt. The SFA has a mandatory debt repayment clause in the event of a change of
control, as is common for this form of agreement, which meant that any alternative transaction would need to
settle 100% of the Senior Debt; this proved to be an insurmountable obstacle for all the equity investors that
management engaged with.
A further alternative explored by management was a merger of Remedica with a suitable product development
partner to reduce new product development complexity. This approach would have also introduced debt at the
merged entity level to allow for a partial reduction of the Senior Debt whilst keeping a residual equity stake in
the merged entity. However, this structure was not approved by the Senior Lenders as it would not have
addressed the Group’s unsustainable levels of debt.
As an alternative, Blantyre and L1 Health proposed the Group Recapitalisation to reduce debt levels and indicated
their willingness to provide funding to maximise the long-term strategic value of the Group. The Majority Lenders
requested that the Company halt all disposal processes except for those related to the businesses known as
“Animal Health”, “Biosciences” and “Dezzo” (“the Non-Core Disposals”) as these businesses were identified as
non-core and were all in late-stage disposal negotiations. In addition, an unsolicited management buy-out offer
for Respiratory Care Africa (“RCA”), a component of the Medical Devices business, had been received prior to this
date, and its disposal was then sanctioned by the Majority Lenders in February 2021. The course of action with
RCA was supported by the Board on the basis that a disposal of RCA (“the RCA Disposal”) would enable maximum
value realisation relative to its retention, considering the longer-term prospects for respiratory care post the
COVID-19 pandemic.
The Board and management were supportive and receptive to the Group Recapitalisation given the Group’s
unsustainable debt levels, the need for additional short-term liquidity to support a potential third Covid-19 wave,
and the absence of an actionable alternative to repay all of the outstanding Senior Debt plus accrued interest by
31 December 2021. In February 2021, Ascendis Health management began consensual negotiations with Blantyre
and L1 Health on the Group Recapitalisation, with the objective of resolving the unsustainable capital structure
to achieve an optimal outcome and balancing the position of all stakeholders.
The Board believes that the Group Recapitalisation, of which the Proposed Transaction forms a critical part,
addresses the Group’s unsustainable financial leverage, as well as its short-term debt maturities and operational
liquidity requirements.
The disposal of Dezzo was implemented on 19 March 2021. Negotiations in respect of the remaining Non-Core
Disposals and the RCA Disposal are at an advanced stage and the terms and conditions thereof will be announced
once they have been agreed. The RCA Disposal and the Animal Health Disposal will constitute category 1
transactions in terms of the Listings Requirements of the JSE (the “Listings Requirements”) and will be subject,
inter alia, to the approval of Ascendis Health shareholders in due course. The completion of the Non-Core
Disposals forms an integral part of the Group Recapitalisation.
3. SALIENT TERMS OF THE PROPOSED TRANSACTION
Pursuant to the Restructuring Support Agreement, participating Senior Lenders (currently being the Forbearance
Creditors) will receive the following in exchange for the discharge of the Senior Debt and deferred vendor
liabilities, an aggregate amount that is estimated to be €447 million at the estimated effective date of the
Proposed Transaction:
• 100% of the shares in all the legal entities that comprise the businesses known as “Remedica” and “Sun Wave
Pharma”;
• the 49% shareholding held by Ascendis Health in the business known as “Farmalider”; and
• the net proceeds from the remaining Non-Core Disposals and the RCA Disposal, which are subject to an
agreed value threshold. Any proceeds above the agreed value threshold will be retained by Ascendis Health,
while any shortfall from the agreed value threshold will be added to the facilities outlined below.
The legal entities that comprise the businesses known as Remedica, Sun Wave Pharma and Farmalider comprise
the “Disposal Group” for purposes of the Proposed Transaction.
The Restructuring Support Agreement also sets out the key terms for the following new facilities for Ascendis
Health:
• A two-year term loan facility in the amount of the ZAR equivalent of €15 million (“the Term Loan”), which
will be used to repay the accumulated and unpaid interest accrued under the Forbearance Agreement of
approximately R220 million and to contribute towards the costs of the Group Recapitalisation. This facility
has a margin of JIBAR + 9% PIK charge; and
• Access to a new draw down facility (“the New Draw Down Facility”) with a two-year term amounting to ZAR
equivalent of €20 million, that can be utilised as required by the Company to fund any remaining transaction
costs, future head office optimisation costs and future working capital requirements. This facility has a
margin of 3.3% cash and JIBAR + 3% PIK.
The Company will retain all the legal entities that comprise the businesses known as “Medical Devices” (excluding
RCA), “Consumer Health” and “Pharma” (collectively, “the South African Assets”). The Company will have access
to the New Draw Down Facility to ensure that it has adequate liquidity to optimise the value of the South African
Assets over the next two years and to reduce the head office costs commensurate with the smaller business. In
addition, Ascendis Health will work with Blantyre and L1 Health to optimise the value of Farmalider and will receive
50% of any incremental value from the eventual sale of the 49% shareholding in Farmalider, above a pre-agreed
amount.
Definitive agreements to give effect to the Proposed Transaction will be prepared in accordance with the terms of
the Restructuring Support Agreement.
4. RATIONALE
The Proposed Transaction provides an opportunity to protect the value of the South African Assets and the
interests of all stakeholders, including shareholders, creditors, suppliers, customers and employees. The outcome
of the Proposed Transaction is considered better than the original Divestment Programme since Ascendis Health
will, in addition to retaining the Pharma and Consumer Health businesses:
• retain the Medical Devices business (excluding RCA), which had previously been identified as a mandatory
disposal;
• have access to the ZAR equivalent of €20 million of additional liquidity via the New Draw Down Facility; and
• participate in any economic upside from the sale of Farmalider above a pre-determined level, without having
to consolidate the €15.3 million of debt currently held by Farmalider.
The Proposed Transaction represents the best opportunity to protect the business and is also considered better
than placing the Group in Business Rescue, the likely result if an agreement was not reached. An important part
of the Group Recapitalisation framework is Ascendis Health’s access to sufficient liquidity to operate in the future,
as it transitions from an international group with eight separate operating entities to a smaller domestic group
with three South African operating entities. Following engagements with shareholders, it became apparent that
any rights issue was unlikely to be supported. Furthermore, it was unlikely that local banks would provide further
financing. Therefore, Ascendis Health had to engage Blantyre and L1 Health to provide future liquidity.
The New Draw Down Facility provides Ascendis Health with working capital and bridge financing that will enable
the Group to continue as a going concern, to optimise the value of the South African Assets and to reduce the
head office cost structure of Ascendis Health to an appropriate level in an orderly manner. The New Draw Down
Facility and the Term Loan can be repaid at any time without any early repayment penalties and can therefore be
refinanced in future. The loans have been largely structured as PIK instruments, with only a 3.3% cash cost on the
New Draw Down Facility, in order to optimise the cash position of Ascendis Health.
The Board believe that this outcome is the best that could have been achieved given the level of the Senior Debt
in the Group and the cost and terms of this debt. The Proposed Transaction also provides Ascendis Health with
greater certainty and future value optionality than the Divestment Programme. Ascendis Health management
now have up to two years to optimise the value of the South African Assets and deliver it back to shareholders.
5. CONDITIONS PRECEDENT
The conditions precedent to the Proposed Transaction will be contained in a set of definitive agreements to be
prepared in accordance with the terms of the Restructuring Support Agreement.
6. NATURE OF BUSINESS OF THE ENTITIES COMPRISING THE DISPOSAL GROUP
An overview of each of the operations comprising the Disposal Group is set out below:
• Remedica is a pharmaceutical manufacturer located in Cyprus which sells over 340 generic, branded generic
and over-the-counter (“OTC”) products in more than 100 countries. Products are sold mainly to emerging
markets as well as to many non-governmental organisations while the company has a portfolio of over 3,400
marketing authorisations. The business has five “Good Manufacturing Practice” accredited manufacturing
facilities, including a world-class oncology facility. Remedica was acquired by Ascendis Health in 2016.
• Sun Wave Pharma is a leading nutraceutical and OTC brand in its home market of Romania. Products are sold
through multiple distribution channels including retailers, pharmacies, wholesalers, and health shops. Sun
Wave Pharma was acquired by Ascendis Health in 2017.
• Farmalider is a Spanish pharmaceutical company which develops, licences and manufactures mainly generic
and OTC products. Headquartered in Madrid, the business sells licensing rights on key products and has
marketing authorisations and dossiers for a range of pharmaceutical products in several European countries.
Ascendis Health acquired a 49% stake in Farmalider in 2015.
7. CLASSIFICATION OF THE PROPOSED TRANSACTION
The Proposed Transaction constitutes a Category 1 disposal and will require the approval of shareholders in
general meeting.
8. INDEPENDENT EXPERT OPINION
As a matter of good corporate governance, the Board has elected to obtain an independent opinion on the
fairness and reasonableness of the Proposed Transaction. Accordingly, the Board has appointed PSG Capital as
Independent Expert to express an opinion on the fairness and reasonableness of the terms of the Proposed
Transaction (“the Independent Expert”). The contents of the Independent Expert's opinion and the opinions and
recommendations of the Board will be contained in the Circular referred to in paragraph 9 below.
9. CIRCULAR, PROCESS AND TIMING
Once the definitive agreements referred to in Section 5 above have been finalised, a SENS announcement to this
effect will be made. A circular setting out full details of the Proposed Transaction (“the Circular”) will be
distributed to Ascendis Health shareholders within 60 calendar days after the date of publication of that
announcement. Further details of the Proposed Transaction, including, inter alia, the pro forma financial effects
of the Proposed Transaction, will be included in the Circular. The Circular will incorporate a notice convening a
general meeting of Ascendis Health shareholders (“the General Meeting”) at which Ascendis Health shareholders
will be requested to vote on the resolutions necessary to give effect to the Proposed Transaction (“the
Resolutions”). At the same time, the salient dates and times of the Proposed Transaction, including the date of
the General Meeting, will be announced on SENS.
10. CONSEQUENCES OF FAILURE TO IMPLEMENT THE PROPOSED TRANSACTION
In terms of the Restructuring Support Agreement, if the Proposed Transaction is not implemented for any reason,
including failure to receive adequate shareholder support at the General Meeting, the Forbearance Creditors will
be entitled to enforce their rights under the SFA and their security across the shares and assets of Group.
Accordingly, in such a scenario, a business rescue process in terms of section 129 of the Companies Act (“Business
Rescue”) will be initiated. A Business Rescue practitioner will be appointed and the Business Rescue practitioner
will, in all probability, initiate an orderly sale of assets to settle the outstanding Senior Debt, by way of a creditor-
approved Business Rescue plan. In parallel to any Business Rescue, it is also likely that the Senior Lenders will
seek to enforce their security over the assets in the Disposal Group.
In a Business Rescue process, shareholders rank behind creditors. Furthermore, in an accelerated Business
Rescue-driven asset disposal process (as is envisaged), it is likely that lower proceeds will be realised given the
distressed circumstances in which they take place. It is therefore also likely that outstanding Senior Debt will
exceed such proceeds. In this worst-case scenario, if the Proposed Transaction fails, then minimal to zero value
will likely remain attributable to Ascendis Health shares.
In a business of the size and complexity of Ascendis Health, the Board is of the view that Business Rescue can only
work and minimise value destruction if the practitioner has time to understand the current position and prospects
of the Group. The Board has therefore identified an appropriate Business Rescue practitioner in case such an
appointment becomes necessary and has engaged with them in order to fully understand the impact of Business
Rescue on all of Ascendis Health’s stakeholders.
The following events, inter alia, will result in the failure of the Proposed Transaction to proceed and the
commencement of the Business Rescue process:
• the Resolutions not being approved by Ascendis Health shareholders at the General Meeting;
• the Resolutions are approved at the General Meeting but, having been approved, do not become effective
and capable of implementation by 31 August 2021 (or such later date as the Forbearance Creditors may
agree in writing);
• a director of the Company at any time withdrawing his or her support for the Proposed Transaction and / or
his or her recommendation to the Ascendis Health shareholders to support the Proposed Transaction, or
making any public statement on whatever platform or through whatever medium which in any way
undermines that director’s support for and / or recommendation of the Proposed Transaction, or otherwise
disparaging or denigrating the Proposed Transaction in any way;
• any party or any other person (other than the Forbearance Creditors) taking any action, legal proceeding, or
other procedure or step to appoint a liquidator, receiver, administrative receiver, examiner, administrator,
compulsory manager, business rescue practitioner or other similar officer; and
• the Resolutions not being approved, or not becoming effective and capable of implementation by, 31 August
2021.
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11. FURTHER CAUTIONARY ANNOUNCEMENT
Shareholders are advised to continue to exercise caution when dealing in Ascendis Health shares until the
definitive agreements referred to in Section 5 above have been finalised and a further announcement is made.
12 May 2021
Bryanston
Investor and media enquiries:
Tier 1 Investor Relations
Graeme Lillie
+27 21 702 3102 / +27 82 468 1507 / graeme@tier1ir.co.za
Rothschild & Co South Africa
Giles Douglas
Managing Director
+27 11 428 3751 / giles.douglas@rothschildandco.com
Sponsor
Questco Corporate Advisory Proprietary Limited
Corporate Advisor
Rothschild & Co South Africa
Legal Advisor
Allen & Overy
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Date: 12-05-2021 09:10:00
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