E-House launches exchange, seeks consents to extend debt, manage risk

By Marisa Wong

Los Angeles, March 31 – E-House (China) Enterprise Holdings Ltd. announced it is conducting an exchange offer and consent solicitation to extend its debt maturity profile, for increased flexibility to its operations, alleviate cashflow pressure, waive some technical breaches of its old notes and manage its default risk.

E-House is inviting all holders of its 7 5/8% senior notes due 2022 (ISIN: XS066636429) and 7.6% senior notes due 2023 (ISIN: XS2260179762) to exchange those notes for new notes with an extended maturity and terms designed to give the company financial stability to continue as a going concern.

As of March 31, E-House has $298.2 million of the original $300 million of 2022 notes and all $300 million of the 2023 notes outstanding.

The company is also soliciting consents from holders to proposed amendments and waivers.

Concurrently, the company is asking holders to accede to a restructuring support agreement to support a potential restructuring of the existing 2022 and 2023 notes that may be implemented via the Cayman scheme under Section 85 of the Companies Act if the exchange offer and consent solicitation are not successfully completed.

As of March 31, E-House said it has not defaulted on any of its payment obligations. It has been mainly relying on internal cash resources and remitting significant amounts of cash from onshore to meet its payment obligations. These remittances have become increasingly difficult in light of the deteriorating credit environment, the company noted.

The company does not anticipate having sufficient funds to repay any old 2022 and 2023 notes not tendered for exchange at their maturity, which would likely trigger an event of default under those notes and cross default under other financings.

The company said it intends to communicate with each of its other creditors to seek waivers or amendments to any such events of default and cross-acceleration under the relevant agreements governing its bank facilities and other debt.

The company said it cannot make assurances that it will be able to obtain these waivers or amendments. If the company is unable to obtain such waivers or amendments, its other creditors may seek to exercise their rights of enforcement under the relevant agreements.

As part of the exchange offer and consent solicitation, the company is also seeking waivers from holders of the 2022 and 2023 notes. If the required consents are received, upon execution of the supplemental indentures to the old notes indentures, all holders will waive certain events of default under the indentures that are alleged to have or may have arisen or materialized prior to the effective time of the supplemental indentures.

The company said it intends to communicate actively with its other creditors to address its liquidity issues consensually and amicably and within a reasonable timeframe. In the meantime, the company will continue to prioritize the stabilization of its operations, aiming to preserve revenue and cash generation.

In addition to the 2022 and 2023 notes, E-House’s offshore debt includes a 2% convertible note due 2023 issued to Alibaba.com Hong Kong Ltd., with HK$1,031,900,000 principal outstanding. The company does not expect to amend the terms of the convertible note. As a result, the convertible note will mature before the new exchange notes.

The company is currently in discussions with Alibaba.com Hong Kong to seek its consent to allow TM Home Ltd., a Cayman Islands subsidiary in which the company owns 70.23%, to provide a JV subsidiary guarantee for the new notes.

Offer details

The exchange offer and consent solicitation will expire at 11 a.m. ET on April 11. Settlement is slated for April 14.

For each $1,000 principal amount of old notes tendered for exchange, the company is offering an exchange and consent consideration consisting of $60 upfront principal repayment in cash; $940 principal amount of new notes; and accrued interest paid in cash.

If the exchange offer and consent solicitation are not consummated, holders who submit tenders and accessions will not receive the exchange and consent consideration but will instead receive the instruction fee and any applicable restructuring consideration if the restructuring is completed.

The exchange offer and consent solicitation require a minimum acceptance amount, which is 90% of the outstanding principal amount of each series of the 2022 notes and 2023 notes.

New notes

The original principal amount of new notes will be the amount equal to 94% of the aggregate amount of old notes tendered and accepted for exchange.

The new notes are expected to mature on April 14, 2025 and will bear interest at 8%. For the first 12 months, the company can elect to pay interest not exceeding 6% in kind and the remainder in cash.

Listing of the new notes on the Stock Exchange of Hong Kong Ltd. is expected for April 19.

Restructuring support

Under the conditions of the exchange offer and consent solicitation, in order to tender their notes for exchange, holders must also submit an executed accession deed to the restructuring support agreement.

E-House and the subsidiary guarantors for the old notes and new notes entered into the restructuring support agreement on March 31.

The key provisions of the restructuring support agreement that directly relate to support for the potential restructuring will automatically come into effect on the date of the exchange expiration.

If the minimum acceptance amount is not received or for any other reason the company decides to proceed with the restructuring via the Cayman scheme, the company would seek directions from the Cayman Court to convene a scheme meeting.

Subject to the receipt of votes in favor of the Cayman scheme from a majority in number of the holders, representing at least 75% of the nominal value of the old notes present and voting at the scheme meeting, the company will ask the Cayman Court to issue an order sanctioning the Cayman scheme.

The company is offering an instruction fee of 1% of the outstanding principal amount of old notes that are voted in favor of the Cayman scheme.

The restructuring support agreement may be terminated under any number of specified conditions.

In addition, the restructuring support agreement may be amended or waived by the company and consenting creditors who hold an aggregate outstanding principal amount of more than 50% of the outstanding principal amount of the old notes.

The longstop date on which the restructuring support agreement will automatically terminate is the date falling six months after (and excluding) the exchange expiration deadline.

If the scheme is successful, the scheme creditors voting in favor will receive a restructuring consideration consisting of new notes in an aggregate principal amount of $960 per $1,000 principal amount of old notes; cash consideration of $60 per $1,000 principal amount of old notes; and accrued interest.

China International Capital Corp. Hong Kong Securities Ltd. (+852 2872 2000, IB_homeproject@cicc.com.cn) is dealer manager for the exchange offer and consent solicitation and financial advisor for the invitation for irrevocable restructuring support.

D.F. King Ltd. (+44 20 7920 9700, +852 3953 7231, E-House@dfkingltd.com, https://sites.dfkingltd.com/E-House) is the information, exchange and tabulation agent.

E-House mainly offers real estate agency services in the primary market, real estate data and consulting services and real estate brokerage network services.

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