Thu 12/10/2020 23:59 PM
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A group of holders of GCL New Energy’s $500 million 7.1% senior notes due Jan. 30, 2021, led by Argentum Creek and holding around 60% of the notes by value has mandated Houlihan Lokey as financial advisor and Hogan Lovells as legal advisor, according to sources familiar with the matter.  Continue reading for Reorg's Asia Core Credit team's updates on GCL New Energy, and request a trial for our coverage of financial restructuring in the region. 

The development comes as SC Lowy was unsuccessful in organizing a group partly because Argentum Creek was believed to have a blocking position and partly because some of the noteholders in SC Lowy’s informal group eventually sold their bond holdings, the sources said.

As reported, SC Lowy was previously looking to organize and was said to have around 30% of the notes by value together with some other noteholders, while at least one hedge fund with a significant position had separately approached the company. The Hong Kong-based asset manager for the time being is not part of the Argentum-led group, according to the sources.

Houlihan Lokey and Hogan Lovells have started engaging with GCL New Energy and its advisors this week after they were appointed to discuss potential solutions for the Chinese solar farm operator’s imminent offshore bond maturity, although no meaningful information has been revealed by the company thus far, said one of the sources, who is close to the situation.

GCL New Energy told people as recently as last week that it was ready to announce proposed terms of an exchange offer this week, according to the sources. However, given the lack of time for negotiating an acceptable exchange offer with the notes maturing at the end of next month, the restructuring is likely headed for a scheme of arrangement that will entail the signing of a restructuring support agreement before the maturity date, said the source close.

The ad hoc noteholders’ group has also made it clear to the company that it does not want a meaningful amount of cash leaking to holdout noteholders in a distressed exchange scenario unless the company can identify all noteholders and achieve 100% participation.

As reported, sources have noted that that a distressed exchange would be challenging given the company’s tight liquidity as it likely needs to offer a significant amount of upfront cash in order to garner sufficient noteholders’ support while ensuring it can repay holdouts.

As detailed in Reorg’s legal analysis, if holdout creditor risk was a concern for the company in a distressed exchange scenario, another option would be to use a scheme of arrangement - likely filed in Bermuda given the incorporation of the issuer - to facilitate an exchange or some other type of restructuring of the notes. Using a scheme of arrangement could provide the company with an ability to cram down any dissenting creditors, assuming the threshold of 50% in number representing 75% in value of those creditors voting under the scheme is obtained.

GCL New Energy reported an unrestricted cash level of just $95.3 million as of June 30 although since then, it has announced several major asset disposals including the sale of 13 solar power plants with an aggregate capacity of 391 MW to state-owned firm Xuzhou State Investment & Environmental Protection Energy. The net cash proceeds expected to total RMB 1.445 billion ($219.5 million) could be something worth considering in upcoming restructuring negotiations, market participants noted.

Meanwhile, the net proceeds of RMB 3.384 billion from the announced second and third batch asset sale to entities held by held by China Huaneng Group and ICBC Financial Assets Investment are expected to be used to cover an outstanding RMB 2.8 billion bridge loan provided by Huaneng and originally due in November, as reported. GCL New Energy previously told investors that the maturity of the loan could be extended if the planned asset disposals could not be closed before then, as reported.

All of the announced asset disposals are subject to conditions precedent while the dispatch of circulars in relation to the second phase 403MW sale to Huaneng, which was first announced in September, was delayed to on or before Dec. 31 from Oct. 30, as reported.

In addition to the solar assets totalling 7 GW as of June 30 predominantly located onshore and encumbered by project level loans, GCL New Energy had government subsidy receivables totalling RMB 9.17 billion as of June 30, including RMB 2.42 billion listed in the first seven batches of China’s national renewable energy subsidy catalogue.

Admiralty Harbour and Milbank are GCL New Energy’s financial and legal advisors, respectively, as reported.

Argentum Creek, Houlihan Lokey and Hogan Lovells declined to comment.

The capital structure of GCL New Energy is listed below:

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