Mon 07/13/2020 05:39 AM
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UPDATE 1: 5:39 a.m. ET 7/13/2020: Vanke had ceased its talks with distressed Chinese property company Tahoe Group and will no longer invest in Tahoe as a potential strategic investor, according to two bondholder sources briefed by Vanke.

Tahoe is seeking to term out the defaulted RMB 1.5 billion ($212 million) 7.5% medium term notes “17 Tahoe MTN 001” due July 6 for at least three years but had not offered any credit enhancements yet for the proposed extension or made plans to repay the coupon payment first while holders had been pushing back for the company to at least repay the coupon first, according to two holder sources briefed by the company.

Tahoe had sold most of its valuable projects, with only a few commercial and villa lands left available for disposal which are difficult to dispose of with high market price, leaving the company difficult to collect funds to repay the defaulted MTN, according to one of the sources.

In response to the Vanke drop out, a company spokesperson said Tahoe is still moving forward with the introduction of strategic investors but declined to comment on the Vanke drop out.

As reported, the company had engaged Houlihan Lokey and CITIC Securities as financial advisers to restructure its offshore and onshore debt.

--Katherine Shi

Original Story 6:45 a.m. UTC on July 8, 2020

Tahoe Kicks Off Negotiations With Holders of Two Defaulted MTNs; Co. Seeks Payment Extension; Holders Want Credit Enhancement, Clearer Repayment Plans

Tahoe Group has started one-on-one conversations with holders of the defaulted RMB 1.5 billion ($212 million) 7.5% medium term notes “17 Tahoe MTN 001” due July 6 and the cross-defaulted RMB 2 billion 7.5% medium term notes due Sept. 8 “17 Tahoe MTN 002” to gauge their reactions to potentially extending the bond payments, a company spokesperson told Reorg. The term-out proposal is not set in stone or detailed at the moment and is still subject to input from bondholders, said the spokesperson, adding that Tahoe aims to roll out a preliminary plan by the end of next week.

Holders of the MTNs, on the other hand, have yet to reach consensus on how they would react to the extension, according to a bookrunner source and two holder sources Reorg spoke to. But the bookrunner said that from the feedback gathered from bondholders so far, most holders demand clearer bond repayment plans and credit enhancement measures.

One direct holder of a defaulted MTN said they would push for Tahoe to pay off interest and would also consider principal extension, but the company needs to provide credit enhancement in exchange.

Another holder source said they plan to reject the extension proposal as the outlook of introduction of strategic investors and new capital infusion is uncertain. Any new investor in Tahoe would want to see a debt restructuring plan before making equity investment, the bondholder surmised.

“17 Tahoe MTN 001” is held by over 10 holders including a Hong Kong-based fund manager, according to a roster dated June obtained by the company, said the company spokesperson, who added that depending on the progress of negotiations with bondholders, Tahoe may or may not need to get the plans approved by bondholder meetings.

The timeline for restructuring and bondholder meetings has yet to be determined, said the bookrunner source and the spokesperson.

Tahoe recently retained a financial institution to assist with debt restructuring, according to the spokesperson, declining to identify the advisor or provide details of its mandate.

“17 Tahoe MTN 002” was traded around 38.2 on Tuesday, July 7, down 17.3 points from 55.5 at the end of June, according to buyside sources.

On the introduction of strategic investors, two creditor sources were briefed by the company before the MTN default that Vanke was in talks with the company for taking a majority stake in Tahoe, but one of the sources said they did not expect a framework agreement to be signed anytime soon.

Both Lianhe Ratings and Golden Credit Rating had lowered Tahoe Group’s issuer rating to C, citing Tahoe’s failure to redeem the MTN on time.

In the meantime, Fitch this afternoon (July 8) downgraded Tahoe’s long-term foreign-currency issuer default rating to RD from CC due to the non-payment of the onshore MTN. The rating agency also downgraded Tahoe's senior unsecured rating and ratings on its US dollar bonds to C from CC with a recovery rating of RR4.

The onshore nonpayment has triggered events of default under the company's US dollar notes, which will become immediately due and payable if the bond trustee or holders of at least 25% in aggregate principal amount of the offshore notes declare so, Fitch said in the release.

The property developer faces two offshore coupon payments this month under its $400 million 15% senior notes due July 10, 2022 and $530 million 7.875% senior notes due Jan. 17, 2021.

Below is the capital structure of Tahoe Group:
Click HERE to enlarge

-- Skylar Chen, Katherine Shi, Frances Yue
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