German Pellets

Bonds Burning Up

Familienunternehmen German Pellets, Standort Wismar, Produzent von Holzpellets und Einstreu fuer Pferde, PERSONEN: Kathrin Leibold, Geschaeftsfuehrerin von German Horse Pellets und ihr Vater Peter Leibold, Geschaeftsfuehrender Gesellschafter von German Pellets
With German Pellets' bonds falling, the company's CEO, Peter Leibold, and his daughter Kathrin Leibold, are in a difficult position.
  • Why it matters

    Why it matters

    The troubles facing German Pellets and its bond investors highlight the risk of investing in so-called Mittelstand bonds issued by small and medium-sized businesses in Germany.

  • Facts

    Facts

    • German Pellets appears to have run into financial trouble and its bondholders face losses of up to 100 percent of their investments.
    • A 7.25 percent coupon bond maturing on April 1, 2016 was trading at just 8 percent of its nominal value Monday, down from 96 percent in mid-January.
    • German Pellets is one of the biggest issuers on the so-called Mittelstand bond market, which has been tarnished by defaults in recent years.
  • Audio

    Audio

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German Pellets, a leading maker of wood pellets for heating, plans to file for bankruptcy on Wednesday, Handelsblatt has learned. It marks the latest major setback for the country’s renewable-energy industry and another warning sign for investors taking chances on high-yielding midsize German companies.

The court filing could impact thousands of investors, including some in the United States. German Pellets ran up too much high-interest debt to fund its ambitious growth plans, borrowing some €226 million. The firm’s next bond payment, borrowed at an interest rate of 7.25 percent, was due April 1.

For weeks, signs have been ominous for the firm with a turnover of €600 million, or $670 million. Handelsblatt and wood industry news service Euwid have learned that pellet production in several of the company’s plants came to a standstill last week and that some employees’ salaries were paid late.

The company, which claims to be one of the world’s leading makers of wood pellets for heating, declined to comment. However, the company on Tuesday abruptly canceled a meeting with bondholders that had been set for Wednesday.

Should a German court approve the company’s plans, German Pellets hopes to be able to manage its own assets in insolvency under the watch of an administrator, sources told Handelsblatt. German bank Commerzbank, credit insurer Euler Hermes, the labor union Coface and the federal labor agency are all expected to be part of a preliminary committee of creditors assigned to negotiate with the company.

The insolvency is being filed under the recommendation of Frank Günther, a recovery expert with Munich-based agency One Square Advisors.

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