Financial Restructuring


Expert reporting and in-depth analysis on firms facing the need for financial restructuring with a focus on the complexities of each case. Our coverage dives deep into different types of restructurings including corporate restructuring, mergers and consolidations, recapitalizations and post-reorganization insight.

According to nearly 70 percent of leading academic economists polled by the Financial Times, the U.S. economy will tip into a recession next year. With the distressed debt warning climbing, restructuring and leveraged finance professionals should be aware of Reorg’s Restructuring Risk Index (RRRI) and how it can serve their business strategies.

The RRRI is a proprietary numerical indicator that reflects the probability of any U.S. public company filing for bankruptcy. Leveraging Machine Learning (ML) and Natural Language Processing (NLP), the RRRI classifies and extracts data from publicly available documents and press releases to identify patterns and provide a scoring mechanism to predict bankruptcy. The model is trained off of Reorg’s unique historical database of in- and out-of-court restructuring events and all public disclosures leading up to those restructuring events.

Available exclusively through Credit Cloud. Learn more.

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Asia Bi-Weekly: Flight Risk (Aug. 22 – Sept. 5)
Tue Sep 6, 2022 2:25 pm Distressed Debt  Financial Restructuring

From Reorg Asia’s Managing Editors ||
In this column, managing editors Stephen Aldred and Shasha Dai take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, Southeast Asia, India and Australia.

In a market where capital is searching for the opportunity to invest outside China real estate, Azure Power Global’s troubles serve as a reminder that good governance – or at least the appearance thereof – is vital to retaining investors.

The Indian renewable energy company has held two investor calls since announcing on Aug. 5 a delay in publishing its annual results and has failed to convince many investors that it is not actually hiding something.

A large part of the problem is that information seems to have been selectively released over time, as well as management’s inability to answer critical questions – albeit in the face of an ongoing investigation.

Azure’s problems began with its botched Friday, Aug. 5 announcement to the Singapore exchange – in a document dated Monday, Aug. 1 – that it was delaying results which should have been published on Friday, July 31.

The announcement talked about “assessing” internal controls over financial reporting, and that there was a significant change in results of operations expected for the 12 months ended March 31 versus the prior 12-month period, as Azure Power is a growing company with a significant increase in operating capacity over the period.

On Aug. 8, the Monday following the announcement, the $350.1 million 5.65% due 2024 notes issued by Azure Power Solar Energy Pvt. Ltd. fell 5.25 points to 92.5/ 94.5, while the $414 million 3.575% Azure Power Energy Ltd. due 2026s fell 5.5 points to 81.5/83.5, as reported.

The company duly held a call with investors to explain things, on Aug. 18. The day after the call, bonds fell 10 points due to a perceived lack of disclosure, as reported.

Then CEO Harsh Shah declined to comment on the call when asked when the results would be published, was unable to comment on what was causing the delay and could only repeat the earlier statement about an ongoing review of internal controls and compliance framework. Shah also couldn’t comment on whether there would be material financial restatements or an adverse or qualified opinion offered on the final audit.

Investors also noted the absence from the call of key shareholders Caisse de dépôt et placement du Québec, or CDPQ, and Omers Infrastructure. CDPQ holds 50.9%, and Omers Infrastructure holds 19.4% in Azure Power.

The notes were now primed for a fall, and fall they did on Aug. 30 after the company announced on Aug. 29 that Shah had resigned – he had only been in the job since July 1 – and that an internal review supported by legal counsel and forensic accounting had identified evidence of manipulation of project data and information by certain employees, as reported. The due 2024s and 2026s both fell around 35 points in one-way trade, with the 2024s dropping to around 51/55 and the 2026s at 50/53.

Another call was announced, and duly held, on Aug. 30. The modestly positive outcome was a 2- to 4-point gain in bond prices on Sept. 1. But those gains were soon given up, as real money accounts dumped the credit the following day, as reported.

Again, the issue was a perceived lack of disclosure from company management. Board Chairman Alan Rosling, the company CFO and acting CEO this time had attended the call, although representatives from CDPQ and Omers were again absent.

Rosling in his opening remarks directly addressed the fact that given ongoing investigations relating to a whistleblower case, the company could not give a clear timeline for release of its 2022 financial results. He added that the case, involving potential data manipulation, relates to a single plant at a subsidiary.

However, in the absence of precise answers on whether restricted groups, or RGs, related to the company’s USD bonds were affected, investors have been left to rely on deduction to form their own conclusions.

When management was asked if the specific project was in the RG portfolio, they said they are in discussion with specific lenders and working with them to address their concerns. Since bondholders have not been contacted, the complaint therefore appears not to be related to RGs associated with the company’s bonds.

Management did not directly respond, however, when asked about potential covenant breaches on onshore bank loans, asserting only that they have long-term relationships with banks.

Azure Power’s delayed release of information and management’s lack of clarity on critical questions has led to a suspicion that more, and worse, could yet come.

Where there is suspicion, there will always be speculation.

And where there is speculation, there will be volatility, and in a market averse to risk and already experiencing outflows, there will be flight.

On Aug. 8, ahead of the market digesting the announcement of a delay in results, Azure Power’s due 2024 notes had been at 98.535, while the due 2026s were at 87.45.

The due 2024s were indicated flat at 67/69 on Monday, Sept. 5, while the due 2026s were at 64/66.

–Stephen Aldred, Managing Editor – Asia

Request trial access to Reorg’s Asia Core Credit here.

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Asia Bi-Weekly: Taiwan, Xi-Putin Tango, China’s High-Yield Bond Rally (Aug. 9 – Aug. 19)

From Reorg Asia’s Managing Editors
In this column, managing editors Stephen Aldred and Shasha Dai take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, Southeast Asia, India and Australia. Any opinions or other views expressed in this column are the author’s own and do not necessarily reflect the opinion or views of Reorg or its owners.

One of the news headlines from the past couple of weeks was that China Bond Insurance Co. Ltd. is providing full guarantee for debt issuances by six real estate developers. Chinese property bonds rose broadly subsequent to the news, with a few beneficiaries of the policy including Country Garden, CIFI and Longfor leading the rally.

Country Garden bonds’ rally would have seemed somewhat counterintuitive as it coincided with Fitch Ratings’ downgrading the developer’s credit ratings to BB+ from BBB-. Losing the last of its investment grades didn’t prevent its bonds from rising on the back of policy support, as some buyside sources said the bonds were already treated as high yield. The next day, Country Garden’s due 2024 notes edged down as investors looked to sell on good news.

In an email statement in response to Reorg inquiries about whether Fitch would have taken into account promised guarantees from China Bond Insurance Co. and how that consideration might have affected its ratings decisions, a spokesperson wrote that Fitch was “unable to comment on unconfirmed reports.”

“But generally speaking, Country Garden’s access to domestic funding was one of the main factors considered for its rating,” the spokesperson wrote in the statement. “As mentioned in the press release, ‘Country Garden’s progress in securing additional onshore capital-market financing, potentially with credit enhancement measures, is key to demonstrating viable capital market access.’”

In addition to capital market access, Fitch also monitors the company’s cash flow pressure from the decline in contracted sales and ongoing construction outflows, the spokesperson concluded.

As we reported, guarantees from China Bond Insurance Co. is the latest iteration of credit enhancement measures aimed at bolstering new debt offerings, with the last round coming in the form of credit default swaps and credit risk mitigation warrants from underwriters.

It’s hard to tell whether the latest policy incentive portends a position of strength (support of the central bank caliber is on the table) or a position of weakness (the government is running out of options). China will do everything in its power to ensure a soft landing of its real estate sector, but the interests of offshore investors are the last on its priority list. A case in point: Evergrande’s restructuring plan, previously anticipated to be announced by the end of July, is now expected to be released “within 2022.”

A larger question is: To what extent will China continue to play by the global capital market’s rules in its seeking of balance between domestic and international priorities? Recent events have made my Feb. 7 essay seem prescient, in which I wrote: “Images of Putin and Xi standing shoulder to shoulder are akin to giving the U.S. the middle finger (or two). Just hours earlier, the U.S. reported that Russia might be circulating allegedly fabricated videos of Ukraine attacks on Russian interests as a pretext for invading Ukraine. Both China and Russia have long imperial histories, feel that they have been wronged by capitalist powers and harbor geopolitical aspirations. Both have territories that they deem integral to their states—for Russia, it’s Ukraine; for China, Taiwan. Keeping Putin and Xi joined at the hip is their shared desire to stand up against Western military prowess and the conviction that they should divide spheres of influence in Eurasia and keep out U.S. sway.” Sounds familiar?

Nancy Pelosi’s visit to Taiwan pushed China more firmly into the arms of Russia—and the U.S., the other direction. What followed was a cascade of events that seemed to be out of a historical movie: more U.S. congressmen visiting Taiwan, China joining military exercises in Russia’s Far East, the U.S. and Taiwan kicking off trade talks.

Commentary about China’s military exercises around the Taiwan straits post-Pelosi visit showcasing the Chinese capability of blockading the island was viable but missed a bigger point. Zoom out on the map, and one will see that China is being isolated. Along its coastlines are U.S. allies, friends and trade partners: South Korea, Japan, Taiwan and most ASEAN countries. Its landlocked frontier provinces of Xinjiang and Tibet are hotbeds of separatist forces. Mongolia, which borders China’s Inner Mongolia, isn’t particularly friendly, either. The only sympathetic actor that matters is Russia.

Putin knows that. Xi knows that Putin knows that. Putin knows that Xi knows that he knows that.

This isn’t a tongue twister. It’s the tempo of the Xi-Putin tango, the pact for the China-Russia honeymoon.

For those who manage money invested in Chinese credit, reading history books is perhaps as important as reviewing bond indentures.

–Shasha Dai, Managing Editor – China

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Reorg Asia Bi-Weekly<br>Crypto Night (June 28 – July 11)

From Reorg Asia’s Managing Editors
In this column, managing editors Stephen Aldred and Shasha Dai take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, Southeast Asia, India and Australia. Any opinions or other views expressed in this column are the author’s own and do not necessarily reflect the opinion or views of Reorg or its owners. For questions or comments, contact Stephen at saldred@reorg.com and Shasha at sdai@reorg.com.

Whether you regard crypto currency as the future of finance or a collective hallucination that allows retail investors to gamble away large chunks of real cash on a Ponzi scheme of epic proportions, you can’t ignore the sector.

By many accounts – including the Bank of England – the market capitalization of crypto assets globally reached the $3 trillion mark some time in late 2021, but the sector has since shed over $2 trillion of that value.

Crypto has always been volatile, even before an extended run-up fueled by a search for returns in a low interest-rate environment and legions of get-rich-quick day traders locked in bedrooms during a global pandemic and fed on a diet of headlines touting fabulous returns.

The causes of the collapse in valuations are well documented and include exposure of vulnerabilities like liquidity mismatches leading to run dynamics and fire sales, and leveraged positions being unwound and amplifying price falls, according to the Bank of England.

The collapse in valuations inevitably generated a barrage of memes, about fry cooks who became Blockchain Investors/Web 3.0 Experts but are now fry cooks again, or buying the dip when the dip keeps dipping.

But with the $60 billion wipe-out of Terra’s stablecoin terraUSD and Bitcoin and Etherium losing 70% of value, bankruptcy proceedings have emerged along with the meme barrage.

Concern about dissipation of assets has already emerged in filings related to the high-profile case of crypto hedge fund Three Arrows Capital, or TAC, late last week.

Foreign representatives for TAC originally filed a chapter 15 petition in New York on July 1. The company was formed in 2012 under BVI law, states the declaration, and is wholly owned by Singaporean corporate parent Three Arrows Capital Pte. Ltd., declarations accompanying the chapter 15 filing show.

Declarations state that TAC was “reported” to have over $3 billion of assets under management in April and is “heavily invested in cryptocurrency, funded through borrowings.” The declarations also cite “various news outlets,” which state that a “substantial portion” of TAC’s investment portfolio comprised Luna cryptocurrency, which “lost 99% of its value” in mid-May. TAC filed its chapter 15 facing a $675 million ‘equivalent’ demand from crypto platform Voyager Digital and a potential asset freeze.

Voyager itself filed a chapter 11 petition late in the day on July 5, seeking relief to address a “short-term ‘run on the bank’ due to the downturn in the cryptocurrency industry generally and the default of a significant loan made to a third party.”

Under its plan, Voyager said that customers with crypto in their accounts will receive in exchange a combination of proceeds from the TAC recovery, common shares in a newly reorganized company and Voyager tokens. Voyager referenced claims against TAC of “more than” $650 million in a first day relief presentation on July 9.

But foreign representatives for TAC on the same day sought emergency relief in connection with the chapter 15, pointing to a lack of cooperation from TAC’s founders and warning that absent provisional relief “there is an actual and imminent risk that the Debtor’s assets may be transferred or otherwise disposed of by parties other than the court appointed Foreign Representatives to the detriment of the Debtor, its creditors, and all other interested parties.”

The risk is “heightened” because a significant portion of the debtor’s assets are cash and digital assets such as cryptocurrencies and non-fungible tokens “that are readily transferrable,” the motion shows.

Specifically, the July 9 motion discloses that the whereabouts of TAC’s founders, Zhu Su and Kyle Livingstone Davies, are currently unknown and they “have not yet begun to cooperate with the Foreign Representatives in any meaningful manner.”

The foreign representatives argue that the provisional relief sought through the motion – which includes authority to serve discovery on the founders and others who may have information regarding the debtor’s assets or affairs – would “mitigate the risk of transfers or disposals” of the debtor’s assets by parties other than the foreign representatives “and authorize discovery narrowly targeted at obtaining fundamental information” about the debtor’s assets.

The TAC and Voyager cases will be closely watched for guidance on the process of restructuring and discovery within an asset class which, let’s be honest, gained its initial popularity among global crime syndicates because of its ability to completely avoid regulatory oversight.

To put it another way, unwinding complex derivatives contracts in the wake of the Lehman Brothers bankruptcy might ultimately lead you to an international investment bank as counterparty. The suspicion is that chasing down crypto assets might ultimately lead to an encrypted USB stick in North Korea.

–Stephen Aldred, Managing Editor – Asia

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Asia bi-weekly: Liability Management Exercise 2.0 (June 15 – June 28)
Mon Jun 27, 2022 12:40 pm Financial Restructuring

In a scoop we published last week, certain holders of Zhenro Properties’ offshore notes have formed an ad hoc group, which has had initial contact with the issuer and is in discussions with potential advisors.

The formation of the ad hoc group came less than three months after Zhenro completed an exchange offer and consent solicitation for five due 2022 notes. In fact, a mere two months after completion of the exchange offer, Zhenro said it would not pay a $13.7 million coupon on its $300 million 9.15% notes due May 2023 within a 30-day grace period, and that the nonpayment would trigger a cross default on 13 series of the company’s offshore notes. Reorg’s tear sheet analysis of Zhenro can be accessed HERE.

The sequence of events has made expert comments on an April 19 Reorg webinar about liability management exercises, or LMEs, seem prescient, as detailed in a prior column. The hasty manner in which the initial exchange offer was launched led one to wonder whether comprehensive efforts had been made to identify the problem first and then come up with potential solutions, according to experts who spoke on the webinar. Fact patterns of many of those LME 1.0’s did raise the question of whether they were long-term solutions or simply Band-Aids.

In another LME 2.0, R&F Properties launched a consent solicitation on June 17 to extend the 2022, 2023 and 2024 maturities of its 10 offshore notes for between three to four years by consolidating the notes into three groups. The proposal includes an asset sale redemption undertaking involving ONE Nine Elms project in London and 60% net consideration from the sale of the R&F Princess Cove project in Malaysia.

As a backup plan to the consent solicitation, R&F said it will launch a scheme of arrangement, and that the RSA will consolidate all 10 series of notes into one single six-year note. Company management told investors on calls that should the consent solicitation fail and the company go with the scheme of arrangement, the terms of the new RSA would be worse than what was proposed now.

Displeased with the proposal, bondholders of R&F are seeking to potentially organize and have been in discussions with Houlihan Lokey and Ropes & Gray, among others. The discussions were at an early stage.

Smarting from LME 1.0’s, will investors be wiser this time around?

–Shasha Dai, Managing Editor – China

From Reorg Asia’s Managing Editors
In this column, managing editors Stephen Aldred and Shasha Dai take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, Southeast Asia, India and Australia. Any opinions or other views expressed in this column are the author’s own and do not necessarily reflect the opinion or views of Reorg or its owners. To request trial access to Reorg for you and your team, click here.

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Asia Bi-Weekly: A Year of Two Halves (May 31 – June 14)

This has been written many times, but it bears repeating at the outset: What we are witnessing in China’s real estate and tech sectors is ultimately politically motivated, and unprecedented. Ultimate outcomes cannot be predicted with precision.

In December I wrote that if 2021 taught me anything, it was that I shouldn’t try to predict 2022. The rough idea of this op-ed was to try to establish if anything had changed, and whether on that basis I could ignore what I had learned in 2021 and try to make predictions. My working hypothesis was that nothing has changed.

What is clear though is that some things have changed, but the focus on China’s “Dynamic Zero Covid” strategy and its widespread lockdowns has largely overshadowed a loosening of regulatory policy towards the country’s real estate sector. But while that regulatory loosening is positive for the sector, the impact of mass lockdowns on China’s economy is very clear, and clearly negative for the sector.

It’s hard not to focus on the economy. I’m not sure anyone had on their China real estate bingo card at the start of 2022 that the Omicron variant would lead to months-long mass lockdowns of multiple Chinese cities, a slowing of the economy to early 2020 levels, unemployment hitting 6.1%, and Li Keqiang instructing 100,000 officials via the Internet in May to stabilize the economy “by any means necessary,” as the nation’s Zero Covid policy would remain in effect. Li effectively signaled that China’s targeted GDP growth rate of around 5.5% for 2022 might not be obtained.

Authorities have imposed full or partial lockdowns on dozens of Chinese cities, including the financial capital Shanghai, where a further full lockdown was put in place over the past weekend.

Set against that, China’s policy response to the slowing economy has signaled an intention to support the real estate sector, effectively recognizing its economic importance.

A rate cut in May from the People’s Bank of China to the five-year Loan Prime Rate for new home buyers, from 4.6% to 4.45%, followed an April collapse in mortgage lending, with new mortgages down RMB 60.5 billion ($8.95 billion) for the month, and came after Li Keqiang’s call for stabilization. The PBOC’s announcement noted, though, that the minimum mortgage rate for second home buyers was unchanged, with the country’s central bank reiterating that “housing is for living in, not speculation.”

Earlier in the year, various regional cities lowered down payment ratios for first-time buyers, along with providing support through subsidies.

More significantly, five real estate developers – Longfor Group, Country Garden Holdings, CIFI Holdings, Seazen Group and privately owned Midea Real Estate Holding – are now widely viewed by the market as “golden” or “chosen,” after a May 27 virtual roadshow hosted by the Shanghai Stock Exchange revealed they had been uniquely selected to issue new onshore bonds supported by credit protection instruments from underwriters, including credit default swaps and credit risk mitigation warrants.

Subsequent to that roadshow, Seazen also priced $100 million 7.95% 364-day senior notes due June 2023 at par, in a rare instance of a Chinese real estate developer accessing offshore high-yield markets this year. The notes, issued through New Metro Global, carry a parental guarantee from Seazen Group, and Reorg reported from sources that they were issued with support from the company chairman’s associates.
However, as we also reported, the issue of the USD notes – combined with a May 30 issue of RMB 1 billion ($150.1 million) 6.5% 2+1 year credit-enhanced MTNs due May 30, 2025 – can only be taken as an indication of strength, regardless of credit enhancements or support, as Seazen issued both a rare high-yield USD note and achieved onshore quota to issue.

Again, you can set this off.

While the PBOC’s May rate cut signaled that a freefall in China’s economy would not be tolerated, and acknowledged the critical role that real estate plays in the economy, developers still struggle with reduced contracted sales and a lack of access to funding. It will likely be months before easing measures have a material impact on the market.

And if the fate of the five “golden” real estate developers seems assured, sources see high beta names like Powerlong Real Estate Holdings and Agile Group Holdings as likely candidates to hit a refinancing wall within the next month or two.

One-off 364-day offshore issuances supported by friends and family, backed by an SBLC and/ or a corporate guarantee, do get the job done and certainly bode well for those that can. But they do not constitute a viable financial market, and sources of capital available to most developers are limited in the extreme.

China’s economic slowdown and regulatory drives mean only $2.1 billion has been raised through IPOs and secondary listings in Hong Kong, down from $20.7 billion over the same period the previous year, the slowest start to a year since 2013, Reuters reported in May. Capital markets and bank loans are unavailable to most developers. The investor base that provides capital offshore and onshore is significantly reduced and substantially altered, and many funds still see China as uninvestable for the moment.

S&P noted in a May report that offshore defaults for Chinese bonds in 2021 broke the prior 2020 record by 4.2 times in terms of amount, with a 3.3% default rate driven by unprecedented failures of property firms. The same report notes that 2022 will see even more bonds due at $103 billion, larger than both 2020 ($87 billion) and 2021 ($96 billion), and that the high default rate may continue.

One critical area to watch in the real estate sector in coming months is contracted sales. While sources argue these have bottomed out, the question now is whether they will rebound fast enough to adequately support the financial needs of high beta names.

Again, it comes back to the economy and whether we will see greater government stimulus in a bid to boost home buyer confidence in the second half. Similarly, questions remain over whether onshore and offshore capital markets will fully open or remain only partially open to select issuers.

It’s easy to argue that little visible progress has been made in offshore restructuring of Chinese real estate bonds in the first half of 2022, but regulatory loosening has been overshadowed by Covid lockdowns and the country’s economic slowdown.

The extent to which the economic slowdown could affect Chinese real estate developers and restructurings cannot be predicted.

Under such circumstances, predictions are best kept broad and vague.

So, to exploit a couple of sports commentator platitudes in order to make a prediction, the game is finely balanced and could go either way.

2022 may yet turn out to be a year of two halves.

–Stephen Aldred, Managing Editor – Asia

From Reorg Asia’s Managing Editors
In this column, managing editors Stephen Aldred and Shasha Dai take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, Southeast Asia, India and Australia. Any opinions or other views expressed in this column are the author’s own and do not necessarily reflect the opinion or views of Reorg or its owners. To request trial access to Reorg for you and your team, click here.

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Intralot’s Dropdown Restructuring Games in Butterworths Journal of International Banking and Financial Law

Authored by Reorg’s expert team in Europe Jamie McDougall, Shan Qureshi, Ben Kovacka and Shweta Rao, this article first appeared in the Journal of International Banking and Financial Law in May 2022.

Intralot is the first European group to restructure its debt using the “J. Crew”-inspired drop-down procedure, transferring its unencumbered US business away from unsecured noteholders due to be repaid in 2024, to be used to support secured debt to refinance unsecured notes maturing earlier in 2021. The trustee for the notes due in 2024 is suing and there is a separate claim for fraudulent transfer.

In this article, the authors explore:

– How unsecured pari passu and pro rata noteholders came to prime others by becoming senior secured noteholders under the drop-down procedure;
– How the drop down was achieved by a US subsidiary issuing unsecured notes due 2025, swapping them for the unsecured notes due 2021 issued by a holding company, being designated an “Unrestricted Subsidiary”, with its shares and assets then being pledged as security for the notes due 2025;
– How Intralot exploited imprecise but standard drafting of the covenants to ensure the value of the US business was low enough to fit within investment basket capacity required to be used for the drop-down;
– Why only 75% of the primed noteholders may have decided to stay being supported by the non-US business rather than exchange for equity in the US business;
– How the different bargaining power among creditor groups impacted the restructuring and resulted in unequal outcomes for creditors in the same class;
– How a minority of 2021 noteholders withheld consent to force repayment of 59% of their notes at par prior to the refinancing-by-drop-down; and
– “J. Crew” blockers as anti-drop-down provisions and their frequency in 2021.

For a copy of the full article contact customersuccess@reorg.com and you can read more analysis from Reorg’s EMEA Covenants team here.

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Global Credit Highlights – (Friday, June 3, 2022)

In the Americas, stocks rose as market participants straggled back from the long holiday weekend and distressed investors focused increasingly on companies in the auto sector, which is bearing the brunt of component shortages and wage/commodity inflation. The high-yield market had a limited reopening, with eight deals pricing across a variety of sectors including midstream and building supplies. Talen Energy’s chapter 11 proceedings continued, with Talen Montana filing an adversary proceeding to avoid the transfer of certain asset sale proceeds to former parent PPL Corp. and Talen Energy obtaining the support of 71% of unsecured noteholders for its RSA. Chemical manufacturer TPC Group filed for chapter 11, and Service King entered into an agreement that will provide as much as $200 million in new capital.

As in the Americas, companies in Europe are continuing to feel the strain from supply-chain disruptions and inflationary costs. French chilled dough and pancake maker Cerelia is seeking an amendment to be able to raise an €80 million loan amid rocketing input costs. As an added pressure, the primary markets are all but shut, leaving companies with upcoming maturities between a rock and a hard place and banks on the hook for underwritten deals.

As Shanghai is reopening after a months-long Covid-19 lockdown, the Chinese government is eyeing economic recovery and picking winners and losers in the property sector by hosting a virtual road show for five privately held developers to pitch new bond offerings. In Indonesia, a puzzling bondholder identification announcement for palm oil producer Sawit Sumbermas Sarana has market participants chattering, and an unusual judgment shows unpaid creditors can access recourse despite prior appointment of insolvency officer-holders in a company’s place of incorporation if the company can prove sufficient connection with Hong Kong.

Request trial access to Reorg here.

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Thu May 19, 2022 2:24 pm Financial Restructuring  High Yield Bonds

Over nine years, the Reorg team has analysed thousands of performing and distressed credits. Our expert team of financial analysts, legal analysts and journalists produce granular capital structures, primary analysis, tear sheets, waterfall models and more.

With long and deep connections to credible sources, we publish up-to-the minute news to help you stay ahead. In this case study, we’re highlighting one example showcasing the ongoing credit insights that Reorg’s team provide day in, day out to enhance efficiency and improve decision making for more than 25,000  investors, advisors and lawyers.

Corestate: The German real estate manager’s bonds have declined more than 30 points in April and May 2022 as Reorg’s editorial trifecta (legal and financial analysts along with investigative reporters) came together to publish various stories outlining the issues faced by the group. 

The group faces €500 million of maturities in 2022-2023 with a possibility of a restructuring looking more likely than ever. 

 


September, 2020 

Reorg initiated coverage of Corestate by detailing the company’s  €300 million bond which had declined sharply from 80 on Aug. 10 to the low 60s by Aug. 20 after the group reported its second-quarter results. Between September 2020 and March 2022, Reorg continued its regular coverage of  the latest developments, analysis and earnings.


March 30, 2022

Reorg published a breaking story as Corestate postponed the publication of its 2021 annual report due to renewed impairment test of goodwill related to its mezzanine lending business HFS.


April 1, 2022

Reorg published a scoop regarding Corestate looking to appoint advisors. The story said Corestate would consider alternatives such as an amend and extend among others if the cash conversion plan is delayed, or if it is unable to refinance the 2023 bonds in a timely manner given a challenging primary market in the light of Russia’s invasion of Ukraine.

The group’s 2023 bonds declined more than 10 points from 80 to about 70.


April 4, 2022

Reorg published an analysis highlighting €500 million maturities in 2022-2023 and potential delays in the group’s cash conversion plan. Reorg highlighted that for Corestate to tackle its maturities, a lot has to go right for the group which seemed challenging. The analysis also highlighted Pimco held about 50% of the 2023 bonds and 25% of the 2022 bonds. 

After the publication of the analysis the group’s 2023 bonds fell more than 10 points to about 57.


April 11, 2022

Reorg published a covenant analysis outlining how the asset sale covenant and director liabilities under German Law may restrict the group redeeming its 2022 bond prior to finding a solution for the 2023 bond.


April 20-21, 2022

Reorg published Corestate 2021 annual report highlighting a €175 million goodwill impairment at HFS which more than halved 2021 EBITDA to €42.1 million. In a follow-up story, Reorg also highlighted additional risk provisions related to bridge loans due to at-risk collectability and a delay in completion of the Giessen disposal. 


April 26, 2022

Reorg published a ratings alert as S&P downgraded the group to CCC on cash accumulation delay and refinancing risk. 


May 5, 2022

Reorg published a balance sheet liquidation valuation of Corestate highlighting unsecured debt recovery at 52%, though most assets on balance are illiquid and realizing value from them could take a long time. The analysis highlighted that risk provisions on bridge loans increase the likelihood of a restructuring. The analysis discussed the concerns around the bridge loans and Stratos funds in depth and analyzed each of the key balance sheet line items. 


May 6-10, 2022

Reorg published a scoop highlighting Corestate bondholders led by Pimco have mandated Houlihan Lokey as financial advisor and Milbank as legal advisor for a potential restructuring as a refinancing of the German real estate manager’s looming maturities seems increasingly unlikely.


May 9-10, 2022

Reorg published that Corestate has mandated a financial advisor and will evaluate alternative options for its 2022, 2023 bonds. The group also withdrew its 2022 guidance and delayed its cash conversion plan due to difficult market conditions.


Reorg concludes that owing to repeated delays in the group’s cash conversion plan and in the absence of any support from shareholders Corestate would have to restructure its upcoming €500 million bond maturities. However, despite the 2023 bonds being in high 40s, the group continues to stress it is in talks with banks regarding a refinancing although it recently admitted it would evaluate alternative options and has mandated a financial advisor.


Noor Sehur
Senior Analyst
neshur@reorg.com

 

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FTLive and Reorg: Global Alternative Credit Summit (May 4-5, 2022) — Hong Kong program

Private credit is booming with estimates suggesting the market is now worth more than US$1 trillion. Having moved from the margins to the mainstream, this previously niche asset class is proving a real disruptor in debt capital markets, as investors seek out steady and healthy returns, and borrowers opt for new non-bank sources of finance. Hear from market leading experts on distressed restructuring, bankruptcy analysis, and the leveraged loan market in 2022 and beyond.  During the summit, we will discuss debt restructuring, leveraged finance, financial restructuring and many other topics. 

GLOBAL ALTERNATIVE CREDIT SUMMIT
4 – 5 May 2022
Unlocking Opportunities in Private Debt as the Credit Cycle Turns
In-Person & Digital l Glaziers Hall, London and Harvard Club, New York | #FTAltCredit

The potential for this market is enormous, but there are risks. For LPs, non-bank credit offers diversification uncorrelated with traditional investments; for borrowers, it promises quicker decisions on loans, better tenors and tailored covenants. Yet, despite ample capital, caution remains a watchword as the global credit cycle turns and the pandemic continues to influence the prospects for business and finance. Moreover, with growing calls for greater transparency and tighter regulation in private credit, is now the right time to join this market? Do the benefits outweigh the risks of this dynamic new asset class?

How does this shadow banking market compare to other private asset classes in terms of returns and ease of access? To what extent has it matured to meet the risk and return profile of an increasingly sophisticated pool of global investors? Can current rates of return be sustained in developed markets, against a fast changing and uncertain macro-economic and geo-political background? To what extent will Asia follow a similar growth path? As demand for direct lending, distressed debt, structured credit and leverage finance increases, where will new avenues for growth emerge? How concerned should investors be about warnings around systemic risks, market opacity, standards and illiquidity issues? Is it time to step up the regulation of private credit?

Hong Kong Program: May 5

Welcome remarks from the FT and Reorg

  • Joshua Oliver, Asset Management Reporter, Financial Times
  • Jenn Jutakeo, Head of Credit Research, Reorg

Leaders’ Panel: How should investors balance opportunity and risk Asia’s private credit markets?

Demand from global investors and local borrowers is pushing private debt to new heights across Asia. As the markets in the US and Europe reach maturity, Asia is seen as a new avenue with massive potential for further growth. Where are the key pockets of opportunity for private debt investors as the region recovers from the impact of Covid-19? What are the most effective investment opportunities in this market, from direct lending to mezzanine and distressed debt? How can LPs navigate this complex market with its multiple regulatory frameworks and diverse political regimes? To what extent is the potential for local currency swings an issue that indirectly impacts on private investments?

  • Vaibhav Chadha, Managing Director, Distressed Loans, Cantor Fitzgerald
  • Kanchan Jain, Managing Director & Head of Credit, Baring Private Equity Asia
  • Leslie Lim, Investment Director, Tsao Family Office
  • Roderick Sutton, Special Advisor, FTI Consulting

Fireside Chat: Has private debt come of age in Asia?

  • Andrew Ferguson, Chief Executive Officer, Asia Pacific Loan Market Association (APLMA)
  • Shasha Dai, Managing Editor, Reorg 

Sector Focus Panel: Asia real-estate outlook for private debt investors

Long characterised by large-scale, stable returns, downside protection, and measurable risk, real estate has been considered one of the key opportunities for private debt investors focused on Asia. But have recent events in China’s real estate market altered that picture? Have events in China impacted other regional real estate markets? How is the overall market evolving and how do yields compare with the other debt investment vehicles in the sector? Where are the regional hot spots for value, and has the pandemic affected the risk outlook for real estate? Which loan structures and strategies, from direct lending to investing via funds, are proving most effective in the current market? To what extent does private real estate debt provide an access route to distressed opportunities?

  • Ron Thompson, Managing Director, Asia Restructuring Leader, Alvarez & Marsal
  • Robert Petty, Co-CEO and Co-CIO, Fiera Capital (Asia)
  • Stephen Aldred, Managing Editor, Asia, Reorg
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