Upcoming Court Hearing on Hyflux’s Super Priority Rescue Financing, Moratorium Extension Applications Will Test Singapore’s New Restructuring Regime; Distressed Investors Buy in as Desks Show USD, SGD Loans at 20/30

 
Relevant Documents:
Affidavit
Presentation

The outcome of Hyflux Ltd.’s upcoming hearing in the Singapore High Court to discuss the company’s moratorium and application for super senior rescue financing will be of significant interest to the Asia Pacific restructuring community, as it will further expand Singapore’s restructuring case law providing investors, advisors and companies with more clarity from Singapore’s judiciary on the workings of the country’s new restructuring regime.

Distressed investors have been looking at the credit hedge fund Value Partners bought into the debt before the moratorium on the company was imposed on June 19, 2018, while Fullerton Fund Management vehicle was an existing holder.

Value Partners and Fullerton did not respond to request for comment.

Last night, the defaulted Singapore environment solutions company announced that the High Court has requested that it files its applications to extend the current creditor moratorium and has scheduled the next hearing on the moratorium extension and its recent application to grant super priority status to a S$30 million rescue financing for Nov. 26, 2018.

SC Lowy, HSBC and BAML continue to show the USD unsecured and SGD secured loans on recent axe sheets, with HSBC quoting SGD loans at a wide bid-ask of 20/30. Earlier trades in the secured debt had been in the 50s, before the moratorium, according to sources Reorg spoke to, who noted that Hyflux’s Build Own Operate model means it has high capex and derives cash flow from private contracts, making an assessment of liquidity value difficult to ascertain.

Hyflux’s bank creditors include Mizuho Bank, CTBC Bank, DBS Bank, BNP Paribas, Land Bank of Taiwan, First Commercial Bank, Hua Nan Commercial Bank, Bank of Taiwn, Hitachi Capital, Bank of Kaohsiung, Bank Rakyat Indonesia, Bank ABC, Chang Hwa Commercial Bank, Mega ICBC and E Sun Commercial Bank, according to an affidavit filed by the company in the Singapore High Court 22 May 2018.

As part of its restructuring intended to be facilitated by way of scheme of arrangement, Singaporean environmental solutions company Hyflux Ltd., or Hyflux, filed an application on Nov. 2, 2018, to the Singapore High Court requesting super priority rescue financing.

On June 19, the Court granted a six-month moratorium pursuant to Section 211B(1) of the Companies Act to Hyflux and four of its subsidiaries. Hyflux announced on Oct. 31, 2018, that it planned to ask for extensions to the moratorium. If granted, the stay on creditor actions against Hyflux would be extended while it continues to prepare the scheme of arrangement to be presented to its creditors.

Following a pre-trial conference held on Nov. 5, 2018, Hyflux has announced that it and its subsidiaries have been directed to file the extension applications by Nov. 15 at 12 p.m. Singapore time.

Interested parties are then to file their responses to the extension applications and super priority application by Nov. 22, 2018, at 12 p.m. Singapore time and Nov. 20, 2018 at 12 p.m. Singapore time, respectively.

Written submissions with respect of the extension applications and/or super priority application are to be filed by Nov. 23, 2018, at 12 p.m. Singapore time.

The hearing on the extension applications and super priority application and the status conference originally scheduled to take place in the week of Nov. 19, 2018, has been set for Nov. 26, 2018 at 10 a.m. Singapore time.

Super Priority Application

According to Hyflux’s announcements on Nov. 2, 2018, approximately S$30 million is to be provided as rescue financing by SM Investments Pte Ltd. and is to be covered by the super priority application.

Hyflux notes that in the super priority application, they have applied to the court for directions on the following orders:
  Legal Background

Rescue finance with super priority status was introduced under the insolvency and restructuring amendments which were made to the Singapore Companies Act in 2017. This has now been superseded by the Insolvency Restructuring and Dissolution Act 2018 which incorporates the restructuring amendments.

Under the restructuring amendments, a company can apply for rescue finance to have super priority status where it has made an application for:
 

1. A scheme of arrangement, or
2. Intends to, propose a scheme of arrangement and has sought an order for a moratorium

such rescue financing must be deemed:
 

1. Necessary for the survival of a company that obtains the financing, or of the whole or any part of the undertaking of that company, as a going concern, and/or
2. The financing is necessary to achieve a more advantageous realization of the assets of a company that obtains financing, than on a winding up of the company.

The court may then grant one of four levels of priority to the rescue finance.

Despite DIP financing being a common feature in U.K., and more predominantly U.S. bankruptcy proceedings, the ability to have super priority status granted to rescue finance is one of a raft of new measures to enhance the restructuring regime in Singapore.

At this early stage, there is limited jurisprudence to guide investors on the likely directions the court’s will grant in the Hyflux application, and ultimately, if it will utilize its discretion and grant the orders detailed in the super priority application.

In Re Attilan Group Ltd [2017] SGHC 283, the first published judgment considering the super priority regime in Singapore, the court refused the company’s application for super priority rescue financing.

The refusal was on the basis that the court did not think that the company had used “...reasonable attempts to secure finance on a regular basis, ie, without any super priority, to move the court to exercise its discretion.” The court stated that the onus was on the applicant to demonstrate that the only way to obtain the necessary rescue finance was to grant a lender of such monies super priority status. The court suggested that (i) the applicant should provide credible evidence that reasonable efforts had been made to obtain non-super priority finance, and (ii) such evidence could have been examples of correspondence detailing negotiations (and ultimately rejection) with potential lenders and the company.

The judgment illustrates (i) the court’s reluctance to use its discretion to grant super priority status to rescue finance unless it is strictly necessary (in order to avoid disruption to the expected creditor priority order), and (ii) that it is not the court’s role to play the part of lender or investor in deciding whether a third party would have provided rescue financing to a company without super priority status, it is for a company to clearly evidence the reasonable efforts they undertook to establish that the application for super priority status should be granted, on the basis that there is no alternative financing available to a company on non-super priority basis.

The eventual orders granted by the court in respect of the super priority application will be of interest not only to Hyflux stakeholders, but market participants in general as rescue financing develops in Singapore.

Reorg will provide updates on the moratorium extension application and super priority application as developments occur.

The court hearing on both the extension applications and super priority application has been set for Nov. 26, 2018 at 10 a.m. Singapore time.