An Ad Hoc Group of Holders of EMTNs Issued by GKN Holdings Limited Sends Public Letter to GKN Holdings Limited in Respect of Events of Default under the EMTNs and Expressing Concern About GKN Holdings Limited's Conduct

Concerned by the conduct of GKN Holdings Limited as Issuer of EMTNs due 2032, an ad hoc group of holders of EMTNs has written an open letter to the board of GKN Holdings Limited 

The ad hoc group has attempted to engage with GKN Holdings Limited in respect of the Events of Default but to date has received no engagement

GKN Holdings Limited completed a tender offer of the EMTNs at a substantial discount to par without notifying holders of the EMTNs of the Events of Default

GKN Holdings Limited also failed to inform Fitch of the Events of Default which may have affected the rating given to the EMTNs

The ad hoc group is in the process of commencing enforcement action against GKN Holdings Limited

LONDON, Jan. 17, 2023 /PRNewswire/ -- An ad hoc group (the "GKN Ad Hoc Group") holding in excess of 72% of the EMTNs issued under GKN Holdings Limited's ("GKN Holdings") £2,000,000,000 EMTN programme (the "EMTNs") has sent an open letter to GKN Holdings in respect of Events of Default that exist under the EMTNs and expressing concern about the conduct of GKN Holdings in connection with the Events of Default.

The GKN Ad Hoc Group would encourage holders of the EMTNs to contact Kekst CNC should they wish to join the Ad Hoc Group or receive further information relating to the Events of Default.

The full text of the letter follows:

16 January 2023

Dear members of the board of GKN Holdings Limited

£2,000,000,000 Euro Medium Term Note Programme issued by GKN Holdings Limited (the "Issuer") and established on 24 April 2017 (the "EMTNs")

1. As you know the ad hoc group of holders of the EMTNs (the "GKN Ad Hoc Group") holds in excess of 72% of the outstanding principal amount.

2. Despite a number of letters written by and on behalf of the GKN Ad Hoc Group to you in respect of the Events of Default that exist under the EMTNs, you have not engaged with us.

3. The GKN Ad Hoc Group would not typically go public in circumstances in which they are commencing enforcement action against an Issuer. However, the GKN Ad Hoc Group has done so in this case because of its concerns about your conduct in this matter, as further detailed below.

Background

4. On 8 September 2022, Melrose Industries Plc ("Melrose"), your ultimate parent, announced an intention to separate the GKN Automotive and GKN Powder Metallurgy businesses from the Melrose Group (the "Announcement" and the "Demerger"). The Announcement referred to can be found by following this link:

https://www.melroseplc.net/media/announcements/2022/2022-half-year-results/

5. The Announcement states that following the Demerger, the GKN Automotive and GKN Metallurgy divisions will be headed by a company headquartered in the UK with shares listed on the Official List and admitted to trading on the Main Market "DemergerCo", whilst the GKN Aerospace business will remain within the GKN Holdings group.

6. The proposed Demerger will result in the GKN Holdings group transferring approximately two-thirds of its current revenue, EBITDA and operating profit for no payment or other consideration being provided in return, as illustrated by the following table extracted from the Announcement:

The Events of Default

7. On 22 November 2022, you were notified that the Announcement constituted an Event of Default under the terms of the EMTNs on at least three grounds:

a. the Announcement of the Demerger is clearly a threat that the Issuer will cease to carry on substantially all of its business or operations in breach of clause 9.1(d) of the EMTNs;

b. further or in the alternative, the Announcement of the Demerger is clearly a threat that a Principal Subsidiary will cease to carry on all of its business or operations in breach of clause 9.1(d); and

c. further, the Announcement of the Demerger has an analogous effect to a Principal Subsidiary ceasing to carry on all or substantially all of its business or operations in breach of clause 9.1(g) (together the "Events of Default").

8. As you know, you are under an obligation to notify the Trustee of the Events of Default, which you have failed to do, constituting a further Event of Default under the terms of the EMTNs.

9. As you are also aware, as a result of the Events of Default, holders of the EMTNs are entitled to have the EMTNs redeemed at the Early Redemption Amount plus accrued interest. Instead, you sought to capitalise on the discount on the trading price of the EMTNs and completed a tender offer for £870 per £1,000 in principal amount of the EMTNs on 1 December 2022.

10. You also failed to inform Fitch of the Events of Default which may have affected their attribution of a BB+ rating to the EMTNs.

11. In summary:

a. you are proposing to give away around two-thirds of the value of its Group to its ultimate shareholder, in circumstances in which the EMTNs are trading well below par;

b. this constitutes an Event of Default under the terms of the EMTNs;

c. despite your request that the GKN Ad Hoc Group explains its position in respect of the Event of Default, you have not even acknowledged the detailed explanation given, supported by an opinion of a leading King's Counsel, let alone responded substantively to it, presumably because you have no answer;

d. you have been unwilling to engage at all with a group of holders of in excess of 72% of the outstanding principal amount of the EMTNs;

e. you were and remain under an obligation to notify the Trustee of the Event of Default which you have failed to do, constituting a further Event of Default;

f. you declined to inform holders of the EMTNs of the Events of Default and instead sought to capitalise on the depressed price of the EMTNs by launching a tender offer substantively below par and the Early Redemption Amount; and

g. you neglected to inform Fitch of the Events of Default which may have affected their attribution of a BB+ to the EMTNs.

12. The GKN Ad Hoc Group is in the process of commencing enforcement action against you and will separately requisition you to call a meeting of holders of EMTNs to resolve on passing a resolution to replace the incumbent Trustee.

13. In order to assist the Ad Hoc Group with this process, the Ad Hoc Group has appointed Kirkland & Ellis as legal advisors.

14. All rights are reserved in full.

Yours faithfully

GKN Ad Hoc Group

Contacts

For U.S.
Jeremy Fielding / Anntal Silver
jeremy.fielding@kekstcnc.com / anntal.silver@kekstcnc.com

For U.K.
Neil Maitland / Victoria Douglas
neil.maitland@kekstcnc.com / victoria.douglas@kekstcnc.com