Relevant Document:
Press Release
Latham & Watkins LLP and Alvarez & Marsal, on behalf of the ad hoc committee of bondholders of various offshore notes issued by CFLD (Cayman) Investment Ltd. and guaranteed by China Fortune Land Development Ltd. (the company or CFLD), announced in a media release today, February 22, that a large number of bondholders have acceded to the cooperation deed, and that as at Feb. 10, 2022, members of the ad hoc committee - with a recently enlarged membership - together with supporting bondholders, now represent well over 25% of the total outstanding principal amount of the bonds.
CFLD Ad Hoc Committee Now Represents >25% of Bonds:
This represents an effective blocking position for any scheme of arrangement or consent solicitation which the company might put forward for implementing its restructuring plan, the release states.
The bonds in consideration, issued by CFLD (Cayman) Investment, and guaranteed by the company, are the $530 million 8.625% guaranteed bonds due 2021, $200 million 9.00% guaranteed bonds due 2021, $940 million 9.00% guaranteed bonds due 2021, $350 million 7.125% guaranteed bonds due 2022, $300 million 6.92% guaranteed bonds due 2022, $330 million 8.75% guaranteed bonds due 2022, $500 million 6.90% guaranteed bonds due 2023, $650 million 8.60% guaranteed bonds due 2024, and $760 million 8.05% guaranteed bonds due 2025 (individually and collectively the bonds, and their holders, the bondholders), according to the release.
As
reported November 22, Latham had, in a letter sent that day, invited bondholders to consider entering into a cooperation deed with the ad hoc committee so as to formally commit to supporting and cooperating with the committee in the restructuring process. The key objective of the proposed cooperation deed was to form a committed group of bondholders behind the ad hoc committee which collectively holds at least 25% of the outstanding bonds, thereby forming a blocking stake in respect of any scheme of arrangement that the company might propose to restructure the bonds, as reported.
As
reported at the time, proposed terms of the debt restructuring plan included 30% to 40% upfront cash in the first few years of an eight-year extension period with an annual interest rate of 2.5%. The company said it expected to collect about RMB 50 billion ($7.89 billion) proceeds from asset disposal by the end of 2023 and intended to use about RMB 57 billion of a total of RMB 75 billion from asset disposals to repay part of its debts totalling RMB 219.2 billion, with the reminder of the proceeds to go towards delivering residential projects and resuming industrial park operations.
Latham reiterated in its November 22 letter that “there are fundamental deficiencies in the way in which the Proposal was formulated and presented to creditors. In particular, the Proposal was developed without any input from the [ad hoc committee] (or its advisors) or, as far as we are aware, from Bondholders generally.” Instead, the plan was authored primarily by current shareholders and debtors of the company, whose interests conflict with those of bondholders, Latham wrote in the letter.
Cooperation Deed
The effective date in respect of the cooperation deed has been designated as Feb. 10. Under the cooperation deed, each supporting bondholder agrees not to vote in favour of, or otherwise support, any restructuring proposal, unless they have first obtained the ad hoc committee’s consent.
In addition to the blocking position noted above, the ad hoc committee is also in touch with a number of other large bondholders supportive of the ad hoc committee and its general strategy. The combined holding of the ad hoc committee, the supporting bondholders and the large bondholders represents over one-third of the total outstanding principal amount of the bonds, the release states.
Latham and A&M in the release note that accession to the cooperation deed remains open to all bondholders, and state that the ad hoc committee strongly encourages all bondholders who have not yet acceded to the document to consider signing it now.
Update on Status and Progress
The release notes reports that the company is actively seeking to sign legally binding restructuring agreements with its onshore creditors, on terms consistent with the company’s debt resolution plan approved by an onshore creditors’ committee in December 2021.
As Reorg
reported Dec. 9, CFLD had announced to the Shanghai stock exchange Dec. 8 that 82 members of its financial creditors committee, holding RMB 103.1 billion of the company’s debt and representing 80.8% of the committee’s total debt holdings, voted in favor of the company’s debt restructuring proposal, and that it had therefore been approved by the creditors’ committee.
According to a company announcement published on Feb. 10, the company’s total debt amounts to RMB 219.2 billion, and its overdue debt (excluding unpaid interest) totals RMB 62.7 billion, and as at Feb. 9, creditors representing RMB 42.9 billion of the company’s debt have signed restructuring agreements with the company, the release notes, and
as Reorg reported.
As Reorg further reported, according to the company’s announcement, of the total RMB 42.918 billion, RMB 23.386 billion is in the form of bonds and debt financing instruments, and RMB 13.925 billion financial debt instruments. Also of the total, RMB 415 million senior financial debt is being extended, and RMB 5.193 billion is being assumed by acquirers of assets that CFLD or subsidiaries are selling.
To view the company’s proposed cash repayment schedule for its debt restructuring plan, click
HERE.
However, the release notes that, notwithstanding the onshore creditors’ committee’s approval of the company’s debt resolution plan and entry by onshore creditors into restructuring agreements with the company, the plan does not bind bondholders in any way: bondholders are not part of or represented by the onshore creditors’ committee.
The release further states that the advisors understand that the company is keen to avoid a PRC bankruptcy process, and outside of such a process, the only way the company can implement the plan - or any other restructuring proposal - so as to bind all bondholders is via an offshore scheme of arrangement. The release notes that the ad hoc committee - together with the supporting bondholders - will have a blocking stake with respect to any such proposed scheme of arrangement.
In relation to the restructuring of the bonds, the ad hoc committee and its advisors have had various discussions with the financial advisors to the company and anticipate that Latham and Alvarez & Marsal, as the ad hoc committee’s advisors, will enter into non-disclosure agreements with the company in the coming days, following which they hope to have better access to information and a better level of engagement with the company.
Read Reorg’s coverage of CFLD
HERE.
–Stephen Aldred