Yuzhou lays out restructuring, gets support from ad hoc group, asks holders to accede to RSA

By Marisa Wong

Los Angeles, Feb. 8 – China’s Yuzhou Group Holdings Co. Ltd. announced the terms of a proposed restructuring of its offshore debt after constructive talks with members of an ad hoc group of noteholders and their respective advisers.

On Thursday the company published a term sheet for the proposed restructuring under its restructuring support agreement, which it intends to enter into with holders of its existing notes to support implementation of the proposed restructuring.

The restructuring will be implemented mainly through a scheme of arrangement proposed to be effected in the Cayman Islands or Hong Kong.

The offshore liabilities to be restructured are the company’s existing notes, namely its existing public notes (listed below) and additional existing debt instruments (listed below).

The terms of the proposed restructuring are substantially in line with the preliminary proposal announced on Aug. 6, 2023. On Dec. 22 the company issued another update saying it was closer to reaching an agreement with the ad hoc group.

The company said it has received strong support from the ad hoc group for the proposed restructuring. As of Feb. 8, members of the ad hoc group, which collectively represent about 30% of the aggregate outstanding principal amount of the existing public notes, have executed or will be acceding to the RSA.

With that, the company intends to implement the proposed restructuring through the scheme, which requires the approval by holders of the existing notes who represent a majority in number and 75% in value of those present and voting at each scheme meeting.

The company is asking remaining holders of the existing notes to consider the terms of the RSA and to accede to the agreement as soon as possible.

The goal of the restructuring, when completed, is to provide the company and its subsidiaries with a more sustainable capital structure to deliver long-term value for all of the stakeholders, the company explained.

Proposal

As announced on Aug. 6, 2023, the proposed restructuring involves cancellation of the existing notes in return for each scheme creditor receiving an entitlement. Holders can choose between one or a combination of the three options of scheme consideration.

Scheme creditors are divided into two classes, class A and class B. Class A creditors are holders of existing public notes (listed below), and class B creditors are holders of additional existing debt instruments (listed below).

In sum, scheme creditors would be able to convert their existing notes into different new dollar-denominated notes and/or newly issued ordinary shares of the company.

In addition, the company plans to raise a maximum of $14.4 million by way of a rights issue to be implemented on or prior to the restructuring effective date. Proceeds would be applied toward payment of fees in connection with the restructuring and the group’s working capital needs. Sponsors have already agreed to subscribe for the rights issue for an aggregate amount of not less than $8.5 million.

Consummation of the proposed restructuring, including issuance of the scheme consideration and implementation of the rights issue are subject to regulatory approvals and approval from shareholders.

RSA

The RSA will terminate automatically on the earliest of the following: the court rejecting the company’s application to convene the scheme meetings; the scheme not being approved by the required majorities of scheme creditors at each of the scheme meetings; the court not granting the scheme sanction order or there not being reasonable prospect of the restructuring being effected by the longstop date; the restructuring effective date; and 10:59 a.m. ET on the longstop date (which was not specified in the term sheet); and the court ordering a wind-up of the company.

The company is offering an early bird RSA fee of 0.2% for notes that are made subject to the RSA by 4 a.m. ET on March 7 and a general RSA fee of 0.1% for notes that are made subject to the RSA by 4 a.m. ET on March 21.

Option 1

New notes to be issued as part of the scheme considerations will comprise short-term notes, medium-term notes in four tranches and long-term notes.

Under option 1, creditors would receive their new notes with a short-term maturity and a cash payment.

The short-term notes mature on June 30, 2027, subject to mandatory redemption provisions. The coupon is 6%, payable in cash.

The face value of class A short-term notes is capped at $356.5 million, and the face value of class B short-term notes will be capped at $18.76 million.

The cash payment consists of $23.5 million to be paid to the class A scheme creditors and $1.24 million to be paid to class B scheme creditors.

Repayment could be potentially accelerated under cash sweep provisions.

Option 2

Creditors electing option 2 would receive four different tranches of medium-term notes, newly issued shares of the company and long-term notes.

MTN tranche A will have a maturity of four years and coupon of 4%; MTN tranche B will have a maturity of five years and coupon of 4˝%; MTN tranche C will have a maturity of six years and coupon of 5%; and MTN tranche D will have a maturity of seven years and a coupon of 5˝%.

MTN tranche A will have a face value capped at $378 million; MTN tranche B will have a face value capped at $655 million; MTN tranche C will have a face value capped at $870 million; and MTN tranche D will have a face value that is not capped but equal to the aggregate face value of the MTNs for the restructuring less the total of the MTN tranche A, B and C caps.

Interest on the MTNs is payable in cash or in kind for the first three years, after which interest is payable in cash only.

Cash sweep provisions may also apply to the MTNs.

The new equity component will consist of ordinary shares in the company representing about 36.6% to 40.1% of the aggregate issued ordinary shares of the company immediately after the restructuring effective date.

Long-term notes would be issued in exchange for the accrued interest under the existing notes, with the long-term notes having a face value equal to 50% of the accrued interest claims.

Option 3

Creditors who select the third option or fail to make a selection are to receive long-term notes.

The long-term notes have a maturity of 10 years and bear interest at 1%, payable in cash or in kind.

The company noted that there is no difference in the conversion ratio for class A scheme creditors and class B scheme creditors in respect of the conversion of their claims to long-term notes.

Generally, class A and class B creditors who choose either option 1 or option 2 convert their claims at different proportions to reflect the difference in existing securities.

Existing notes

The company’s offshore liabilities to be restructured include the following existing public notes:

• $350 million 6% senior notes due 2022, with $11,944,000 outstanding;

• $500 million 8 5/8% senior notes due 2022, with $14,441,000 outstanding;

• $500 million 8˝% senior notes due 2023, all of which is outstanding;

• $500 million 8˝% senior notes due 2024, all of which is outstanding;

• $650 million 6% senior notes due 2023, all of which is outstanding;

• $500 million 8 3/8% senior notes due 2024, with $497 million outstanding;

• $500 million 8.3% senior notes due 2025, with $486 million outstanding;

• $645 million 7 3/8% senior notes due 2026, with $636.5 million outstanding;

• $400 million 7.7% senior notes due 2025, all of which is outstanding;

• $300 million 7.85% green senior notes due 2026, with $295 million outstanding;

• $562 million 6.35% green senior notes 2027, with $557 million outstanding;

• $100 million 12% senior notes due 2023, all of which is outstanding;

• $200 million 9.95% green senior notes due 2023, with $179 million outstanding;

• $120 million 8˝% green senior notes due 2022, with $115 million outstanding; and

• $527,899,800 7.8125% senior notes due 2023, all of which is outstanding.

The offshore liabilities to be restructured also include the following additional existing debt instruments:

• $300 million senior perpetual securities, all of which is outstanding;

• $267 million 6% notes due 2022, with $229 million outstanding;

• $250 million 8˝% notes due 2022, all of which is outstanding;

• $150 million 10˝% notes due 2022, all of which is outstanding;

• $38 million 6% notes due 2023, all of which is outstanding;

• To the extent that the company considers necessary or desirable, $100 million 6% notes due 2021, with $90 million outstanding; and

• Subject to the company obtaining the prior written consent of the majority initial consenting creditors (as defined in the RSA) any other offshore financial debt incurred by the company as an issuer or a guarantor that the company considers necessary or desirable to include in the restructuring.

Contacts

Morrow Sodali is the information agent (https://projects.morrowsodali.com/Yuzhou; https://portal.morrowsodali.com/yuzhouRSA; https://portal.morrowsodali.com/yuzhouTRANSFER; +852 2319 4130 or +44 20 4513 6933; yuzhou@investor.morrowsodali.com).

The company’s financial advisers are Alvarez & Marsal Corporate Finance Ltd. (+852 3102 2600; ProjectYuzhou@alvarezandmarsal.com), BOCI Asia Ltd. (+852 3988 6302; Project.Reborn@bocigroup.com) and Haitong International Securities Co. Ltd. (+852 2840 1680; project.reborn@htisec.com).

The company’s legal adviser is Linklaters (+852 2842 4888; dlyuzhou@linklaters.com).

The ad hoc group has been advised by PJT Partners (+852 3427 6100; projectfisher@pjtpartners.com) and Kirkland & Ellis (+852 3761 9127; fisher@kirkland.com).

Yuzhou is a property developer based in Shanghai and Shenzhen, China.

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