KTM rides on restructuring plan to write off debt after Bajaj's investment move

Creditors of Austrian motorbike maker KTM AG approved a restructuring plan that will write off 70% of the company’s debt and resume production with the help of new investments.

KTM will need to secure €548 million ($575 million) of funding by May 23 to pay creditors, according to the plan that was approved on Tuesday by a majority of creditors. An extended circle of shareholders will provide additional financing to resume production, the company’s parent, Pierer Mobility, said in a statement.

Share of Pierer Mobility rallied 11% in Zurich after the announcement.

The approval comes in spite of opposition from US hedge fund Whitebox Advisors, a holder of KTM’s promissory notes, who had been calling for lenders to reject the company’s plan. The investment fund had been seeking allies among other investors of the Schuldschein loans, including small savings banks, to convince the company of its own proposal.

KTM filed for insolvency proceedings in Austria in November, as slowing sales after a boom during the coronavirus pandemic led to a build-up of inventory. The company is backed by Bajaj Auto, a manufacturer that’s part of the eponymous Indian conglomerate, and Stefan Pierer an Austrian entrepreneur known for his turnaround bets.

A group of banks hired Houlihan Lokey to advise on the insolvency. In its improved offer, KTM will pay out 30 cents for each euro of debt in one tranche, instead of over the course of two years. The quota is the the legal minimum for a self-administered insolvency in Austria.

Whitebox had sought to allow creditors to participate in any eventual benefits from KTM’s turnaround with its alternative plan. The proposal was rejected by insolvency administrator Peter Vogl.

Creditors filed insolvency claims totaling around €2.2 billion, the creditor association KSV1870 said in a statement. About €2 billion has been recognized by the administrator.

The company has yet to announce the source of new funding needed to pay creditors. Earlier negotiations led by Citigroup Inc. had attracted several investors, KTM said last month.

Co-owner Bajaj Auto has put forward €50 million to pay for KTM’s immediate operational costs, according to a statement on Monday. A further €100 million must be provided by the end of March.

Austrian entrepreneur Stephan Zoechling has also proposed financing, he said in an interview with the Trend magazine. The businessman has become known for betting on special situations, including the buyout of exhaust-pipe maker Remus and purchasing the European assets of sanctioned Russian lender Sberbank.

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