Orco Property amends meeting notices to restructure five note series

By Susanna Moon

Chicago, April 23 - Orco Property Group SA amended the notices for the meeting to be held on April 27 for holders of five series of its bonds.

The meetings will cover the company's €50,272,605.30 of 4½% bonds with attached warrants, €24,169,193.39 of bonds exchangeable for Suncani Hvar shares, €149,999,928 of 1% convertible bonds, €175,000,461.60 of 2½% bonds with redeemable warrants and CZK 300 million of Czech bonds.

The definition of Orco Germany SA bonds was replaced with €100,100,052 five-year bonds issued by Orco Germany, corresponding to €129.1 million including accrued interests and reimbursement premium.

Under the amended terms, if holders do not approve scenario two, then scenario three or, if applicable, scenario one will apply, according to bondholder notices.

The description of scenario two has been amended and replaced by the following:

• 84.5% of the Orco Germany bonds would be exchanged no later than May 18 for new 0.01% convertible bonds, €76 million of which would be converted into 18,361,548 Orco Property shares no later than May 22 and €33,129,067 of which would be repaid by July 16. The second payment could be made in cash in the amount of €872.04 per note or in shares representing a total number of 7,848,081 shares. Holders would receive 55% of the share capital of Orco Germany.

The proposed amount of the new notes to be issued assuming 100% participation of bondholders is €55.2 million for Orco Property and €20 million for Orco Germany.

The coupon for the new notes will be 5% cash plus 5% paid in kind, as long as more than 75% of the nominal amount remains outstanding; 4% cash plus 4% PIK, as long as more than 50% but no more than 75% of the nominal amount remains outstanding; and 4% cash plus 3% PIK, as long as no more than 50% of the nominal amount remains outstanding.

Amortization will occur on Feb. 28, 2015 for 25% of the nominal amount, on Feb. 28, 2016 for 25% of the nominal amount, on Feb. 28, 2017 for 25% of the nominal amount and on Feb. 28, 2018 for the outstanding principal amount of the new notes.

Meeting background

The meetings were called on April 11 through bondholder notices to propose the following:

• Approval of the terms and conditions of the exchange of up to 89.9% of the bonds for common shares;

• Waiver and withdrawal of the current lawsuits against the company; and

• Agreement not to further challenge the judgment adopting the company's Safeguard Plan, which was approved by the Paris Commercial Court on May 19, 2010.

For each series of bonds, at least half of the bonds must be represented at the meeting, and at least two-thirds of the votes cast must be in favor of the resolutions in order for them to pass.

As previously reported, the holders of Orco Germany's €100.1 million of bonds due May 30, 2012 voted in favor of exchanging the bonds for convertible bonds issued by Orco Property.

The bondholders voted at a meeting on April 5. The holders of about 63% of the outstanding Orco Germany bonds were present or represented, and the resolution was unanimous.

Restructuring

An ad hoc committee of Orco Property bondholders holding about one-third of the bonds proposed a restructuring.

Under scenario one

• 86.3% of the Orco Property bonds would be mandatorily exchanged for shares;

• Holders would have the option to exchange the remaining bonds for new Orco Property bonds via a public exchange offer;

• Each existing shareholder would receive one three-month warrant per Orco Property share exercisable for one new share at a price of €4.10; and

• The company would promise not to offer to the Orco Germany bondholders any transaction that would be more favorable than that approved by the Orco Germany bondholders at their meeting on April 5.

Under scenario two, as originally proposed

• 89.9% of the Orco Property bonds would be mandatorily exchanged for shares after shareholder approval was received;

• Holders of the Orco Property bonds would have the option to exchange their remaining bonds for new Orco Property bonds via a public exchange offer;

• 84.5% of the Orco Germany bonds would be exchanged no later than May 28 for new 0.01% convertible bonds, €76 million of which would be converted into 18,361,548 Orco Property shares no later than June 18 and €33,129,067 of which would be repaid by July 16. The second payment could be made in cash in the amount of €223.73 per note, in shares at the rate of 53 shares per note or in Orco Germany shares. In the last case, the holders would receive 55% of the share capital of Orco Germany;

• Holders of the Orco Germany bonds would have the option to exchange their remaining bonds for new Orco Property bonds via a public exchange offer. Any Orco Germany bonds not exchanged would be amended to have their maturity postponed to 2050 and their interest rate lowered to 0.5%.

The company said before that if it could reach an agreement on scenario two with the Orco Germany bondholders by April 17, it would pursue scenario two.

Under scenario three

• The Orco Germany bondholders would convert 100% of their claims into Orco Property equity for no more than 27.2 million shares and would not receive any Orco Germany equity nor any debt consideration;

• 73.6% of the Orco Property bonds would be mandatorily exchanged for new shares after shareholder approval was received; and

• The remaining Orco Property bonds would be exchangeable on a voluntary basis for new bonds in a public exchange offer.

The total number of shares to be issued would be 97.9 million under scenario one, 65 million under scenario two and 45 million under scenario three.

New notes

As previously noted, the new notes will mature on Feb. 28, 2018. The principal will be repaid in four annual payments in 2015, 2016, 2017 and 2018.

The new notes will pay a combination of 4% to 5% cash interest and 3% to 5% PIK interest. The percentages will vary annually depending on the principal amount of notes already reimbursed.

The notes will be callable at par at any time.

The new notes will benefit from a 25% cash sweep from net sale proceeds on selected assets in the event that less than €144.7 million of new notes are issued and 37.5% otherwise.

Orco Property Group is a Central European developer and asset management company based in Luxembourg. Orco Germany is a real estate company based in Berlin.

Joint restructuring

On April 18 Orco Property Group and Orco Germany said they entered into a joint restructuring agreement with bondholders representing about one-third of the Orco Property Group bonds and 61% of the Orco Germany bonds.

Under the joint agreement, roughly 90% of the Orco Property Group bonds will be converted into 65 million Orco Property Group shares. The remaining Orco Property Group bonds will be exchanged for €55.2 million in newly issued bonds.

In addition, 85% of the Orco Germany bonds will be converted into 26.2 million Orco Property Group shares. The remaining Orco Germany bonds can be exchanged for €20 million in new notes, the release said.

The new notes to be issued by Orco Property Group will mature in 2018 and will bear an annual interest consisting of a combination of cash interest, which will decrease to 4% from 5% upon repayment of at least 50% of the principal, and PIK interest, which will decrease in steps to 3% from 5% upon repayment of 50% and 75% of the principal.

Orco said the principal would be repaid in four annual payments in 2015, 2016, 2017 and 2018.

Also, the new notes will benefit from a 25% cash sweep from net sale proceeds on selected assets, which will correspondingly reduce the subsequent annual repayment.

Bondholder meetings

The implementation of the joint agreement is subject to finalization of some Orco Germany transaction documents by April 24 and the approval at a minimum of the Orco Property Group bondholder general assemblies for the company's 2010, 2013 and 2014 bonds.

Upon approval of the joint agreement by these general assemblies and the Commercial Court of Paris, Orco said other options announced earlier this month will not be applicable, including the Orco Germany bondholders' option to receive part of the share capital of Orco Germany.

The bondholder general assemblies for the Orco Property Group 2010, 2012, 2013 and 2014 bondholders will be held on April 27, as described above. The general assembly for the 2011 bonds will be held on April 30.

After those meetings, the joint agreement will be submitted to the Orco Property Group shareholder general assembly for approval.

Since the joint agreement modifies conversion terms approved by the Orco Germany bondholders on April 5, the company said new convening notices will be published shortly for an Orco Germany bondholder general assembly to be held on May 7 to approve the terms of the joint agreement.

Orco said the joint agreement is also subject to approval by applicable regulatory authorities, and the conversion of the Orco Property Group bonds is subject to a modification of the company's safeguard plan by the Commercial Court of Paris.

The company said a hearing on the plan modification is likely to occur in mid-May.

Once the joint agreement is implemented, Orco said its share capital will increase to 108.3 million shares from 17.1 million shares, assuming that the terms of the joint agreement are approved by each of the bond tranches and assuming 100% participation in the new notes offer.

Standstill agreement

According to a previous release, RBS and GSD have signed a standstill agreement that will be in effect from April 19 to June 15.

The standstill defers the repayment obligation related to the April 15 maturity of the €300 million financing for Orco Germany's GSG portfolio.

The company said this extension would allow the group to further advance its refinancing negotiations.

Orco Property Group is a Central European developer and asset management company based in Luxembourg. Orco Germany is a real estate company based in Berlin.

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