Powerlong enters restructuring term sheet with some 2025 noteholders

By Marisa Wong

Los Angeles, Dec. 21 – Powerlong Real Estate Holdings Ltd. made an announcement on Thursday saying it has made significant progress on a plan for a holistic solution to some of its offshore debt, which it referred to as the scheme debt.

Over the past few weeks, the company has been working with its professional advisers to come up with a plan that aims to consider creditors’ existing rights and treat all creditors fairly, secure a long-term sustainable capital structure and to further stabilize the group’s operations as well as to protect the rights and interest of all of the company’s stakeholders.

The company has been actively engaged in constructive communications with members of an ad hoc group of holders of the scheme debt regarding the holistic solution.

On Dec. 21 the company entered into a restructuring term sheet with the ad hoc group who hold about 27% and 35.6% of the aggregate outstanding principal amount of the scheme debt and the company’s existing dollar-denominated senior notes (the first nine series listed under “in-scope debt” below), respectively.

The parties agreed to work together on coming up with detailed terms under a restructuring support agreement on or prior to Feb. 23.

Framework highlights

Some highlights of the framework of the holistic solution are as follows:

• The scheme consideration will consist of one or a combination of different options at the scheme creditor’s selection as set out in more details in the term sheet, including (i) cash and securities, which include ordinary shares of Powerlong Commercial Management Holdings Ltd. currently held by Powerlong and mandatory convertible bonds convertible into the shares of Powerlong, (ii) new medium-term notes, (iii) new long-term notes and (iv) a new loan;

• An early consent fee in cash of 0.3% of the early eligible participating debt held by the participating creditors as at the early consent fee deadline, the details of which to be set out in the RSA;

• A base consent fee in cash of 0.15% of the base eligible participating debt held by the participating creditors as at the base consent fee deadline, the details of which are to be set out in the RSA; and

• Offering some credit enhancements for the mandatory convertible bonds, new notes and new loan.

The restructuring effective date will be no later than Sept. 30, 2024, the longstop date, and are to occur as soon as practicable and within 10 business days of the conditions to the RSA being met or waived.

Restructuring consideration

The restructuring consideration for each scheme creditor will consist of one or a combination of the following options:

• Option 1, a fixed combination of cash and securities as follows: 4.5% of 11/60 of the entitlement in cash and 95.5% of 11/60 of the entitlement in ordinary shares, plus 4.5% of 49/60 of the entitlement in cash and 95.5% of 49/60 of the entitlement in mandatory convertible bonds. Beginning one year after the issue date, 25% of the original principal amount of the convertibles will be subject to mandatory conversion each year at a conversion price of HK$3.35;

• Option 2, new medium-term notes that will have a tenor of five years and a coupon of 2¾% that steps up to 3% after 1.5 years, to 3¼% after three years and to 4% after four years. Only 1% of the interest for the first three years will be payable in cash, and the balance will be paid in kind. Interest after the three years will be paid entirely in cash. The medium-term notes will be subject to mandatory redemption provisions;

• Option 3, new long-term notes with a tenor of 7.5 years. The coupon is 2% initially, stepping up to 2½% after four years and to 2¾% after six years. Interest will be PIK-only for the first four years and entirely in cash after that. The long-term notes will be subject to mandatory redemption provisions; or

• Option 4, new loan that will be repayable in semiannual installments. Interest will accrue at 2% for the first three years, stepping up to 2¼% until 4.5 years after the issue date, to 2½% until six years after the issue date and to 2¾% after that. For the first three years, only ½% is payable in cash for the first three years, with the balance payable as PIK interest.

In-scope debt

The proposed restructuring affects claims relating to the following in-scope debt with Powerlong as issuer or borrower:

• The New York law-governed 4% senior notes due July 2022 (ISIN: XS2368100033) with $4,105,000 outstanding;

• The New York law-governed 7 1/8% senior notes due November 2022 (ISIN: XS2078556342) with $20,652,000 outstanding;

• The New York law-governed 6.95% senior notes due July 2023 (ISIN: XS2030333384) with $18,515,000 outstanding;

• The New York law-governed 4% senior notes due July 2024 (ISIN: XS2500700633) with $183,220,506 outstanding;

• The New York law-governed 7 1/8% senior notes due January 2026 (ISIN: XS2500700716) with $266,210,950 outstanding;

• The New York law-governed 6.95% senior notes due December 2025 (ISIN: XS2647488878) with $389,440,450 outstanding;

• The New York law-governed 6¼% senior notes due August 2024 (ISIN: XS2213954766) with $500 million outstanding;

• The New York law-governed 5.95% senior notes due April 2025 (ISIN: XS2250030090) with $535 million outstanding;

• The New York law-governed 4.9% senior notes due May 2026 (ISIN: XS2341882913) with $200 million outstanding;

• The New York law-governed 6½% senior notes due August 2024 (with the outstanding amount redacted in the notice);

• The Hong Kong law-governed facility agreement dated July 8, 2019 for a dual-currency dual tranche term facility with CMB Wing Lung Bank Ltd. as agent (with the aggregate outstanding principal amount of the 2019 syndicated loan redacted);

• The Hong Kong law-governed facility agreement dated May 13, 2020 for term loan facilities with Industrial and Commercial Bank of China (Macau) Ltd. as agent (with the aggregate outstanding principal amount of the 2020 Macau syndicated loan redacted);

• The Hong Kong law-governed facility agreement dated June 30, 2020 for term loan facilities with Hongkong and Shanghai Banking Corp. Ltd. as agent (with the aggregate outstanding principal amount of the 2020 HK syndicated loan redacted);

• The Hong Kong law-governed facility agreement dated Aug. 9, 2021 with respect to term loan facilities with HSBC as agent with the aggregate outstanding principal amount of the 2021 syndicated loan A redacted); and

• The Hong Kong law-governed syndicated loan B (of which the facility agreement date and outstanding amount were redacted).

Prior announcement

Powerlong had not made the interest payment due on its 5.95% senior notes due April 2025 (ISIN: XS2250030090) as of Nov. 29, according to a prior company notice.

Interest in the amount of $15,916,250 became due and payable on Oct. 30, and the company had a 30-day grace period to make the interest payment.

The non-payment will result in an event of default under the terms of some of the company’s offshore long-term interest-bearing bank and other borrowings.

The company explained that due to the complex business environment, sales have been recovering at a slow pace, and its liquidity position has continued to deteriorate. The company said it expected that its cash on hand and bank deposits would not be sufficient to cover its existing and future debt, despite all the efforts it has made.

The company said that from Jan. 1, 2022 to its announcement on Nov. 29, it has repaid total principal and interest of about RMB 6.12 billion of its offshore debt.

The company engaged Haitong International Securities Co. Ltd as its financial adviser and Sidley Austin as its legal adviser to facilitate talks between the company and its creditors.

Next steps

Powerlong emphasized in Thursday’s announcement that the term sheet is subject to, among other things, execution of definitive agreements with the ad hoc group and other creditors. As of the latest announcement, no such definitive agreements have been entered into by the company.

In other words, the actual terms of the holistic solution may deviate from the framework, depending on the ongoing discussion with the creditors.

The company said it is committed to continuing the constructive dialogue with the ad hoc group and is looking to finalize terms of the RSA as soon as practicable.

The company plans to implement the proposed restructuring through one or more schemes of arrangement in Hong Kong or other applicable jurisdictions.

Requests for information on the holistic solution can be directed to Haitong (+852 2848 4333; project.powerlong@htisec.com).

The real estate company is based in Hong Kong.

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