On February 11, 2020, CEE Legal Matters reported that Filip & Company, working with Freshfields Bruckhaus Deringer, had advised RCS & RDS / Digi Communications N.V. on its issuance of two series of senior secured bonds with a total value of EUR 850 million. Clifford Chance Badea and Cleary Gottlieb Steen & Hamilton advised the lead arrangers, which included Citibank, ING Bank N.V., and UniCredit Bank S.A.
Counsel for RCS & RDS / Digi Communications N.V.: Alexandru Birsan, Partner, Filip & Co.
Counsel for Citibank, ING Bank N.V., and UniCredit Bank S.A.: Radu Ropota, Counsel, Clifford Chance Badea
CEELM: Alexandru, how did you and Filip & Co. become involved in this matter?
Alexandru: RCS & RDS/Digi is a very old and important client of ours. We have worked for them on their IPO, several international bond issues, large financings, and large acquisitions, as well as major disputes. This mandate is a continuation of that relationship.
CEELM: What about you, Radu? How did you and Clifford Chance Badea become involved?
Radu: We acted in the past as Romanian legal counsel for the financial institutions in relation to other important and successful transactions of Digi Communications N.V., namely (i) the issuance of Digi Communications N.V. (at that time Cable Communications Systems N.V.) of EUR 350,000,000 5.0% Senior Secured Notes due 2023, guaranteed on a senior secured basis by RCS & RDS S.A. (in 2016); (ii) the subsequent tap issue of EUR 200,000,000 5.0% Senior Secured Notes due 2023 (in 2019), and the (iii) the initial public offering of shares of Digi Communications N.V and the listing on the Bucharest Stock Exchange (in 2017). In all these transactions, we worked alongside Cleary Gottlieb Steen & Hamilton LLP, U.S. legal advisers.
Thus, I think our involvement in this matter was a natural continuation of our previous work and we were approached by the Cleary team to team up once more, which appear to have been favored by both Citigroup (as global coordinator) and RCS & RDS S.A.
CEELM: What, exactly, was the initial mandate when you were each first retained for this project?
Alexandru: Well, it was exactly the mandate that we executed – issuing a very large bond out of RCS & RDS rather than Digi Communications – refinancing and “onshoring” their HY debt.
Radu: The initial mandate was to advise Citigroup and the joint book-runners in relation to a new Rule 144A/Reg S bond to be issued by either Digi Communications or RCS & RDS S.A., intended to launch in January 2020, and mainly to conduct a due diligence review of the Romanian sections of the data room (virtual and physical), to review the offering memorandum, to review the transaction documentation (e.g., the indenture governing the notes, the Purchase Agreement, and the Intercreditor Agreement), and to review the security documents and corporate authorizations. As you will note, once the structuring discussions were settled and the decision for the Romanian company – RCS & RDS S.A. – to act as issuer was made, the initial mandate did not suffer any deviations.
CEELM: Who were the members of your teams, and what were their individual responsibilities?
Alexandru: We actually had two teams on this deal. One advising the issuer, in which Olga Nita and myself were the principal coordinating lawyers, and we had valuable contributions from Roxana Diaconu, Andreea Banica, Codrina Simionescu, and Anca Badescu; the issuer team had to do everything from transaction structuring, prospectus drafting, contract drafting and negotiation, to listing and dealing with regulators. A second team, led by our colleagues Monica Statescu and Carmen Dutescu, advised the trustee and the agent on this deal.
Radu: In order to ensure the best and most efficient outcome, we tried to the maximum extent possible to involve the same people that took part in the previous transactions mentioned above. Thus, the core team was comprised of Associate Gabriela Muresan, Partner Madalina Rachieru (who is Head of the Capital Markets team in Bucharest), and myself. Gabriela was in charge of general disclosure in the offering memorandum, while Madalina and I were responsible for the structuring aspects of the transaction, the contractual documentation, and the overall coordination and supervision of the project. The due diligence team consisted mainly of Associate Mihnea Niculescu and Senior Associate Andrei Caloian, who were also responsible for the corresponding disclosure in the offering memorandum. When required, we involved other members from other departments as well – for example colleagues from our Litigation department such as Senior Associate Stefan Dinu –in relation to various punctual legal analyses.
CEELM: Please describe the bond issuances in as much detail as possible, including your (and your firm’s) role in helping make it happen.
Alexandru: This was one of the largest bond issuances ever by a Romanian issuer, and due to its size it certainly needed the liquidity provided by international markets. Ultimately this was structured in two series of senior secured bonds, totalizing EUR 850 million. The first bond issue amounted to EUR 450 million with 2.5% interest per year, maturing in 2025, while the second bond issue amounted to EUR 400 million with 3.25% interest per year, maturing in 2028.
Due to certain quirks of Romanian law we needed to structure a number of things differently than on previous issues by the Digi Group, which were done from the Dutch entity. Also, as this was marketed to international high yield investors, we needed to do things differently than in previous issues by Romanian issuers, which were addressed to the Romanian market, where investors do not perceive the specificities of Romanian law as particularly cumbersome.
The transaction happened in an extremely alert timeline and took full advantage of the last market opening before the coronavirus crisis hit.
Radu: While the Group is no stranger to capital markets transactions in general, and to high yield bond transactions specifically, this is the first time the bonds have been issued by RCS & RDS S.A., the Romanian company. Two series of bonds were issued, i.e., (i) EUR 450,000,000 2.50% Senior Secured Notes due 2025 and (ii) EUR 400,000,000 3.25% Senior Secured Notes due 2028.
The bonds benefit from the guarantee of the Dutch parent company – Digi Communications N.V. – and the guarantee of Digi Tavkozlesi es Szolgaltato Korlatolt Felelossegu Tarsasag and Invitel Tavkozlesi Zrt., both from Hungary, as well as Digi Spain Telecom, S.L.U., from Spain.
Thus, the transaction involved a Romanian issuer and certain Romanian law provisions governing noteholders’ meetings, guarantors from three different jurisdictions, security agreements governed by the laws of four different jurisdictions – Romania, the Netherlands, Hungary, and Spain – an inter-creditor agreement under English law, and a purchase agreement and indenture agreement governed by New York law. This speaks to the complexity of the transaction, with legal counsels on both sides from five jurisdictions being involved.
Given that the issuer is a Romanian company and that Romania is the core market for the Group, the Romanian-law-related work-streams represented an important part of the transaction. In terms of the transaction structure, we needed to put in place a construct that could integrate English and New York law concepts with Romanian law concepts, with the final aim of making the transaction structure work. We successfully achieved that with the concentrated efforts of our team and the Filip & Co, Cleary, and Freshfields teams. Also, we were able to achieve that while also keeping up with the ambitious timing proposed at the beginning of the transaction.
CEELM: What is the current status of the issuances?
Alexandru: The issuance has successfully closed.
Radu: Currently, the bonds are admitted to trading on the Irish Stock Exchange (operating under the trading name Euronext Dublin).
CEELM: What was the most challenging or frustrating part of the process?
Alexandru: This type of transaction is highly complex, and it had many moving parts, in six or seven countries. Managing it all on a very tight timetable is a fairly difficult exercise with no room for error, but I would not say it was frustrating. I would say that it is fun … now that it is over.
Radu: When a project is successfully finalized it is hard to feel or say that something was frustrating. Challenging? Of course! This is always the case for multijurisdictional projects and this one was no exception. As mentioned above, the most challenging part from a legal perspective was to align Romanian law concepts (some of them regulated by obsolete rules, such as those related to the meetings of noteholders) to US law concepts and international practice in order to develop a construct that would work seamlessly from all perspectives. A significant part of the work was invested to achieve this sometimes in late night calls between the Cleary team, the Filip & Co team, and ourselves.
CEELM: Was there any part of the process that was unusually or unexpectedly easy?
Alexandru: There were a number of key technical points that needed to be structured for the international market for the first time and this required all the main lawyer teams on the deal to agree on very fine points, which is never easy and is typically a bit of a nightmare. This time around, however, we were extremely lucky to have excellent colleagues on all sides of the deal, people who had enough intelligence, self-confidence, and commercial spirit to overcome tricky legal issues as a team. I have to say, that was quite a nice experience.
Radu: Yes, there were parts of the process that seemed smooth, however I would not say they were unexpected. Communications with the Cleary team on one side, and with Filip & Co on the other, were always easy. This is because of the familiarity with RCS & RDS /Digi (from previous transactions), and the familiarity and ease of adaptation to inherent issues of multijurisdictional transactions (as we all have experienced this in the past), as well as the familiarity between the various team members (again, from previous transactions). So it was easy for all us to get on the phone and brainstorm, negotiate, and agree to the most suitable terms in our respective clients’ interests and in the interest of the transaction as a whole.
CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?
Alexandru: No. The final result was substantially better than the initial mandate as we managed to raise more money, at better prices, on better terms, and quicker than originally anticipated.
Radu: As mentioned above, our initial mandate did not suffer significant deviations. The timing of the transaction was slightly delayed, the approach to some of the work-streams needed to be adjusted from what we initially contemplated, and more resources needed to be allocated to address this and keep up with the timing, but all in all, the initial mandate was respected.
CEELM: Radu, what specific individuals at Cleary instructed you, and how did you interact with them?
Radu: Yes, the Cleary team had a coordination role in this project. Actually, it was pretty much the same team that we have worked with since the 2016 transaction and involved mainly Aseet Dalvi, Andrew Hurwitz, and James Healy. So the interactions via calls or e-mails were smooth and always constructive.
CEELM: You’ve each been complimentary to each other so far, but here’s a formal opportunity to expand on that. How would you describe the working relationship with each other on the deal?
Alexandru: We had an excellent relationship with our colleagues at Clifford Chance Badea going into this transaction and this was one of the strong points of the deal – that we managed to resolve almost everything quickly and painlessly. Also, we worked extremely well with Freshfields (on our side) and Cleary Gottlieb on the banks’ side, as the main international counsels on the transaction. The entire group really worked as one team (while protecting the interests of their respective clients, of course) which saved a lot of time, hassle, and, frankly, money for the clients.
Radu: Our working relationship with Filip & Co goes a long way back and I think I speak for them as well when I say that we have developed a very good working relationship over time and we are always happy to work across from them. Having a similar work ethic, a strong legal background, and a commercially-oriented approach for sure helps. Discussions and negotiations took place over the phone – we have each other’s’ mobile phone numbers and it was very easy to track each other whenever there was the need to settle any points. We worked through the issues this way throughout the entire process and there was nothing major left to settle when the transaction was scheduled for launch.
CEELM: Finally, looking back, how would you each describe the significance of the issuances?
Alexandru: The deal was very important in creating a new reference transaction for Romanian issuers, in terms of size and commercial terms, but also in terms of legal structure. Once the waters clear a bit, I am quite certain others will use this transaction to do their own very successful deals.
Radu: I would say that the issuance of the two series of bonds was an important legal achievement in term of how the transaction was structured, but also a commercial achievement, as it allowed the company to take the benefit of the opportunity window not only to successfully close the transaction but also to borrow funds at a lower interest than previous issuances. Also, this was the first transaction of its kind – a 144A high yield bond – implemented by a Romanian company.