UPDATE 3: 6:10 a.m. ET 5/16/2023: Chinese real estate developer Logan Group has yet to reach agreement with an ad hoc group, or AHG, of holders of its USD bonds on proposed restructuring terms ahead of a scheduled hearing tomorrow morning, May 17, for a pair of winding-up petitions against the company in Hong Kong, said three sources familiar with the matter.
Tomorrow’s hearing follows the recent May 2 Hong Kong High Court ruling against Jiayuan International, under which Judge Linda Chan ordered the Chinese developer to be wound up, as reported. Chan reiterated in her reasons for ordering the winding up that she did not think there was any utility to granting the company a further adjournment, as it had not made sufficient restructuring effort. The company was seeking another two-month adjournment of a petition filed in September 2022,
as reported.
In the Logan case, the two sides are stalled over fundamental terms of the restructuring, including treatment of a $1.36 billion shareholder loan, as well as the percentage of equity to be held by the company chairman, Kei Hoi Pang, post restructuring, the sources said. With creditors potentially being asked to equitize debt, including through a possible convertible instrument, the issue of subordination to the shareholder loan has become a sticking point in discussions, the sources said.
Negotiations between the company and the AHG, which holds around 26% of the USD notes, are ongoing, the sources said, with two of the sources noting that the two sides are in a go private situation until June 24.
Hearings on the Hong Kong petitions have previously twice been adjourned by agreement between the company and the AHG, as reported. The AHG filed two petitions in Hong Kong against Logan subsidiaries and a third petition in the Cayman Islands against the company,
as reported.
In early January, Cosimo Borrelli, a managing director at Kroll Hong Kong and chief restructuring officer for Logan, had said the company and its advisors were aiming to finalize by February terms of restructuring for the company’s debt,
as reported.
Subsequently in March, a draft proposal of restructuring terms circulated among certain investors, including bondholders outside of the AHG, while the AHG was still negotiating with the company, including an adjournment of a hearing for the winding-up petition scheduled for March 15,
as reported.
Borrelli on a call on March 27 said the company was aiming to distribute an improved and detailed restructuring proposal to all creditors in two weeks, and to have the restructuring implemented in September, following the release of a detailed plan in early April, and negotiated restructuring support agreements with various creditor groups executed alongside associated term sheets by the end of April or early in May,
as reported.
Logan and PJT, financial advisor to the AHG, declined to comment.
–Anna Zhang, Stephen Aldred
UPDATE 2: Logan Group Aims to Distribute Improved, Detailed Restructuring Proposal to All Creditors in 2 Weeks, Execute RSAs by May, Implement Restructuring in September; Terms to Include Amortization PaymentsUPDATE 2: 10:36 a.m. ET 3/27/2023: Logan Group’s chief restructuring officer Cosimo Borrelli said during a call tonight, March 27, with the company’s USD noteholders that the company will aim to distribute an improved and detailed restructuring proposal to all creditors in two weeks, and that the company’s proposed restructuring terms will feature amortization payments throughout the extended period, according to two sources familiar with the matter.
Borrelli concedes that the company is about one month behind its original restructuring timeline due to the enormity of work taken to come up with robust and reliable cash flow forecast and a slower-than-expected process to convince an ad hoc group, or AHG, of USD note holders to adjourn the winding-up petitions.
The company is still aiming to have a restructuring implemented and effective in September and, following the release of a detailed plan in early April, plans to negotiate restructuring support agreements with various creditor groups and have them executed alongside associated term sheets by the end of April or early May.
Borrelli said while the timeline may be ambitious with the AHG given that the group has not signed confidential agreements, it is more realistic with other creditor groups where negotiations are much more advanced.
Borrelli said amortization payments will be available for all creditor groups, and that certain creditor groups will have the option to participate in listco’s equity. The equity participation will not be mandatory, he said.
Terms of the amortization payments are being developed, and the onshore property market sales and liquidity conditions will be taken into consideration, Borrelli said.
Borrelli said a key principle of Logan’s restructuring is to treat all creditors including holders of the private placement notes and USD bond holders equally or on a
pari passu basis, but for various reasons the company is not able to do that perfectly for all creditor groups. He added that the differences are not material, and that he and the company will explain them throughout negotiations with creditors.
The company will continue to have direct and substantive dialogues with creditors, and with the Hong Kong winding-up petitions now adjourned to May 17, it expects to make good progress on negotiations with the AHG and other creditor groups.
UPDATE 1: Logan Group to Send Restructuring Proposals to Most Creditor Groups by End of February; Co. in Negotiation With AHG to Resolve HK Winding-Up Petition; PPN Holders Likely Treated as Different Class as Public Bond HoldersUPDATE 1: 11:48 a.m. ET 2/23/2023: Cosimo Borrelli, Logan Group’s chief restructuring representative, or CRO, from Kroll (Hong Kong) Ltd. said during an investor call tonight, Feb. 23, that it has finalized a timeline for the restructuring process and aims to send proposals to different groups of creditors with the exception of convertible bond holders by the end of February, according to two sources familiar with the matter.
During the call, Borrelli said a hearing on the winding-up petition in Hong Kong has been scheduled for March 15, and that the company is in discussion with the ad-hoc group to further adjourn the hearing.
In March, the company and the AHG will seek to resolve the Hong Kong and Cayman Islands winding-up petitions and will hold briefing sessions to different creditors regarding their restructuring proposals. The company and the creditors will then start the work of negotiating towards an agreement. Thereafter, the company’s legal advisors will prepare a creditor support agreement and will ask noteholders to sign non-disclosure agreements to receive private materials.
The company will also share proposals with the PPN noteholders after about the same time with the negotiations with the broader bondholder community or approximately a week thereafter.
For holders of the convertible bonds, the timeline may be a few weeks later compared with other creditors, roughly in late March, as it needs to work out key terms with other creditors first before it can work out the exchange mechanisms of the convertible bonds including the duration and the strike price, among other things.
The CRO told investors that private and public bond holders will likely be treated as separate creditor classes. He explained that in determining a class of creditor, it is important to look at rights and interests going into the scheme and those going out of the scheme, and that at present, the second part of the equation is unavailable. Furthermore, the two are different parties with different guarantees and security structures.
The draft restructuring proposals and term sheets provided to certain creditors may see some changes after the team’s analysis of the company’s cash flow forecasts and its financial position so as to better reflect what the company can actually afford. This may result in a change of coupon or in terms of time periods, but nothing “material” in what may have been seen or heard to date, according to the CRO.
He reiterated that offshore assets will strictly be used for offshore restructuring, while onshore assets will be used to service both onshore and offshore debt. However, structurally, when considering that all onshore projects have their own lending, onshore projects will first be applied to repaying onshore debt then available to offshore debt. The representative also noted that the offshore plan includes both onshore and offshore assets as credit enhancement but current strategy applies them slightly differently across various creditor groups to ensure equal repayment.
It does not expect any no money options, which means the group does not expect any new financing over the restructuring period or very limited ones.
The company remains committed to reaching a fair agreement with all groups of creditors, and these classes will remain inter conditional, which means one class cannot be restructured without the other. It will also be based on a robust cash flow forecast and focus on full repayment with appropriate credit enhancement.
The representative said the company will be better placed to discuss in March what the next steps are once the proposals have been seen by groups of creditors to facilitate negotiations.
The representative also noted that for the current cash flow forecast, it includes a relatively limited amount of cash flow assumption from the onshore operations that will be used to take advantage of land bank and urban region renewal opportunities that present themselves over the restructuring period.
Original Story 1:16 a.m. UTC on Feb. 22, 2023Haitong International Securities to Host Logan Group Investor Call Thursday, Feb. 23, 9PM, HK TimeHaitong International Securities, financial advisor to Logan Group, will host an investor call on Thursday, Feb. 23 at 9 p.m., Hong Kong time, to update Logan’s public bondholders on the company’s offshore restructuring progress, according to two sources familiar with the matter.
Logan’s chief restructuring officer, Cosimo Borrelli, a managing director at Kroll (Hong Kong) Ltd., had said on a call on Jan. 5 that under a tentative timeline, Logan would aim to finalize its offshore restructuring plan by mid-February and work with an ad hoc group, or AHG, to resolve two winding-up petitions in March, as
reported. At the time of the call, hearings on the winding-up petitions had been scheduled for Jan. 10 in the Cayman Islands and Jan. 11 in Hong Kong, as reported.
Subsequent to the call, Logan
announced that the hearing on the Cayman petition had been adjourned to the first available date convenient to the court on or after March 13, while winding-up petitions against its two subsidiaries in Hong Kong had been adjourned to the first available date in the court’s diaries that is at least seven business days after March 1.
At the meeting in January, Borrelli had also said that Kroll, Logan and Haitong International Securities would hold at least one call a month to update holders on the restructuring process.