Relevant Document:Statement
This afternoon, an ad hoc group of Macau casino investment company New Cotai’s noteholders filed a statement asserting that the company filed chapter 11 to “shield the bad acts of equity sponsor Silver Point Capital” - namely, Silver Point’s alleged support for an initial public offering of shares in Studio City International, the company’s only asset, which the ad hoc group says reduced the value of the company’s holdings by “hundreds of millions of dollars” and caused an immediate drop in the trading price of the notes. The noteholders claim that Silver Point “profited by at least $58 million on account of its participation in the IPO” and resisted their requests for information and efforts to discuss restructuring in the months prior to the notes’ May 1 maturity.
The ad hoc group, which claims in today’s filing to hold more than 70% of the notes (and almost 94% excluding Silver Point’s holdings), was formed in the wake of the IPO.
As of the petition date, the ad hoc group was composed of Arkkan Capital Management, Fidelity Management & Research, Highbridge, Nine Masts Capital, Redwood Capital Management, Tor Investment Management and Ivy Investment Management
. As Reorg Asia
previously reported, Arkkan subsequently sold its exposure to an unknown buyer.
According to New Cotai’s first day papers, the outstanding balance of the PIK notes as of the petition date exceeds $856 million and the notes are the only funded debt obligation of New Cotai.
The ad hoc group says it will file a motion to terminate exclusivity “in the very near term in order to propose a plan funded by the Ad Hoc Group that will have the support of virtually all of the Debtors’ noninsider creditors.”
The noteholders allege the IPO heavily diluted New Cotai’s holdings in Studio City International for the benefit of Silver Point and Melco Resorts & Entertainment, the other large shareholder in Studio City. The noteholders add that the
first day declaration contains “inaccurate or misleading statements and omissions regarding Silver Point’s conduct in connection with the IPO.” According to the noteholders, Silver Point sought amendments to the indenture that would “help facilitate” the IPO. Silver Point also represented that the IPO “ would make New Cotai no worse off than Studio City’s current structure,” the noteholders say.
According to today’s filing, the IPO in fact made New Cotai “significantly worse off,” diluting the value of the company’s interest in Studio City International “by hundreds of millions of dollars and causing the trading price of the Notes to drop from close to par to 52.25% in less than two weeks.” Silver Point and Melco Resorts benefited from the IPO, the noteholders allege, by purchasing 89% of the shares in Studio City International at a “discounted price.” The noteholders assert that Silver Point “did not take any action to enable New Cotai to participate in the IPO in order to prevent or diminish its dilutive effect on New Cotai’s shares. Instead, Silver Point elected to siphon value away from New Cotai, all but guaranteeing that New Cotai would be unable to repay the Notes at maturity.”
In the first day declaration, “independent fiduciary” John Brecker testifies that Melco Resorts authorized the IPO over the objection of New Cotai. The noteholders indicate they have requested a deposition of Brecker but New Cotai has refused to make him available or produce any documents.
The noteholders also dispute assertions in the first day declaration that New Cotai or Silver Point “commenced good faith discussions with the Ad Hoc Group prior to the Petition Date.” According to the statement, the noteholders made “repeated attempts to initiate discussions immediately after the IPO,” but neither New Cotai nor Silver Point attempted to address the May 1 maturity until April 11 and did not provide a restructuring term sheet until April 26.
The ad hoc group states that Silver Point intends to seek “a lengthy extension of Silver Point’s out-of-the money option without addressing the Debtors’ indisputable need for a balance sheet restructuring of the $856 million in Notes growing at almost 11% per year.”
A first day hearing is scheduled for tomorrow, Thursday, May 9, at 10 a.m. ET before Judge Robert Drain.
Editor's Note: This story was originally published at 2:17 p.m. ET (May 8) / 2:17 a.m. HKT (May 9). It was re-sent at 9:20 a.m. HKT for Reorg Asia subscribers who may have missed it.