Addleshaw Goddard’s CFLD Bondholders Group Trying to Rally 33% Support to Block Potential Extraordinary Resolution

Relevant Documents:
Offering Memorandum - $530 Million 8.625% Due 2021 Bonds
Trust Deed - $300 Million 6.92% Due 2022

Addleshaw Goddard, which currently represents a group of bondholders holding more than 25% of China Fortune Land Development’s defaulted $530 million 8.625% due Feb. 28, 2021 bonds, is still trying to rally a one-third blocking position before potentially commencing any legal action, said two sources familiar with the matter. Continue reading for our Asia Core Credit team's update on the legal proceedings surrounding CFLD's defaulted 2021 bonds, and request a trial for access to our analysis and reporting on hundreds of other bond issuances in the region.

Having over 33% of the bonds will enable the group to combat any attempt by CFLD to gain bondholder support by meeting the necessary quorum threshold required to pass an extraordinary resolution under the terms of the bonds, the sources said.

Addleshaw has been circulating engagement papers among bondholders since early March after it warned on a call about a “two-speed” restructuring approach adopted by CFLD where the company would prioritise the restructuring of onshore debt over offshore, as previously reported.

As detailed in Reorg’s previous analysis - which reviewed some of the key terms of the $530 million 8.25% due 2021 bonds and explored potential options and offshore value - acceleration and enforcement of the bonds require the usual 25% threshold to instruct the trustee.

However, considering modifications to the money terms of the offshore bonds - via any potential consent solicitation launched by CFLD - the offshore bonds utilise a typical English trust deed formulation requiring the convening of a meeting and the passing of an extraordinary resolution. This does not require the often seen unanimous support requirement.

The quorum to convene a meeting to amend the money terms of the bonds is one or more persons holding or representing not less than 66.6%, or at any adjourned meeting not less than 33.3%, in principal amount of the outstanding bonds. An extraordinary resolution can be passed at the meeting by a majority of at least 66.6% of the votes cast, or a written resolution signed by not less than 90% in principal amount of the bonds outstanding.

Given the above, bondholders representing over 33.3% could be positioned to block the passing of an extraordinary resolution and subsequent amendment to the money terms of the $530 million bonds.

In addition to amending the money terms under the bonds, the trust deed for the $300 million 6.92% due 2022 bonds sets out, that amongst other things, bondholders also have the power exercisable by an extraordinary resolution, subject to the terms and conditions of the bonds, to “sanction the exchange or substitution for the Bonds of, or the conversion of the Bonds into, shares, bonds or other obligations or securities of the Issuer or any body corporate formed or to be formed.” Reorg has not reviewed the trust deed for the $530 million bonds.

In terms of engagement from the company side, financial advisor to CFLD, Admiralty Harbour, has so far only engaged with offshore bondholders through an identification exercise and has yet to provide any further information regarding the repayment of the notes, only reiterating that it is pending the release of an onshore debt restructuring plan, the same sources said.

As reported, management of the Chinese industry park developer told its creditors’ committee during a meeting on April 1 that it had already reached extension agreements with 44 creditors involving RMB 17.8 billion of debts, and another 22 creditors holding RMB 7.1 billion debt were seeking internal approvals for the extension.

The capital structure of CFLD is below: