Zhenro enters RSA with group of holders of senior notes, perpetuals

By Marisa Wong

Los Angeles, Jan. 2 – Zhenro Properties Group Ltd. issued an update on Tuesday saying it has made significant progress on its offshore holistic liability management solutions.

The company said it entered into a restructuring support agreement on Jan. 2 with members of an ad hoc group representing about 26.97% of the aggregate outstanding principal amount of its senior notes and perpetual securities.

The company noted that broad-based support is required to facilitate successful implementation of its offshore holistic liability management solutions, so it is asking all holders of its existing debt who have not signed the RSA to accede to the RSA as soon as possible.

Recent developments

Over the past few months, the company and its advisers have engaged in constructive dialogues with various stakeholders in achieving the offshore holistic liability management solutions. Those efforts culminated in a term sheet being signed on Nov. 1.

The company said that implementation of the offshore holistic liability management solutions will alleviate its pressure of offshore debt, provide the group with a long-term sustainable capital structure to enhance its adaptiveness to market changes and preserve value for all stakeholders.

The company plans to implement the offshore holistic liability management solutions through a scheme of arrangement in Hong Kong or other applicable jurisdictions at its election to compromise specified dollar- and renminbi-denominated senior notes (listed below) and some loans and, for its perpetual securities (described below), through a consent solicitation. The company aims to begin the process as soon as possible.

Under the scheme, new notes will be issued to the scheme creditors.

RSA overview

The terms of the RSA are substantially the same as those of the term sheet signed Nov. 1.

Under the RSA, the company has agreed to, among other things,

• Perform all actions that are commercially reasonable and necessary in order to support, facilitate, implement or otherwise give effect to the restructuring as soon as reasonably practicable;

• Use commercially reasonable endeavors to implement the restructuring, the scheme and the consent solicitation in the manner laid out by the RSA; and

• Perform all necessary actions so that, on or before the longstop date, the Hong Kong scheme effective date occurs and the restructuring effective date occurs as soon as practicable following the occurrence of the Hong Kong scheme effective date.

The creditors in turn have agreed to, among other things,

• Use all commercially reasonable endeavors to support, facilitate, implement or otherwise give effect to the restructuring, provided that a participating creditor will not be required to take any positive action which is not explicitly required under the terms of the RSA (with some exceptions);

• Vote in favor of the scheme or consent solicitation (as applicable) in respect of the aggregate outstanding principal amount of all existing debt in which it holds a beneficial or legal interest (as applicable) as principal as of the record time or expiration deadline of consent solicitation; and

• Not object to any scheme, or object to, or abstain from, any consent solicitation, or otherwise commence, join, support or assist any proceedings to oppose or alter any restructuring document filed by the company in connection with the confirmation of the restructuring.

The longstop date is June 30. The restructuring effective date will be no later than that longstop date or a later date that may be agreed in writing between the company and the ad hoc group or consenting creditors holding more than 50% of the then outstanding principal amount of the scheme in-scope debt.

Consent fee

Each participating creditor who holds eligible participating debt as of the consent fee deadline, 4 a.m. ET on Jan. 24, will be eligible to receive a consent fee in respect of that eligible participating debt.

The consent fee for creditors other than the perpetual securityholders is (i) 0.15% of the outstanding principal amount of the scheme in-scope debt held by the consenting creditor, payable in cash, and (ii) a pro rata share of series 1 new notes (described below) in an aggregate principal amount equal to $95 million plus, to the extent that there is any additional scheme in-scope debt, 2.24% of the additional amount.

Perpetual securityholders will be entitled to a consent fee equal to (i) 0.15% of the principal amount of the perpetual securities held by that consenting holder, payable in cash; and (ii) a pro rata share of $5 million principal amount of series 1 new notes.

The consent fee will be payable on or prior to the restructuring effective date, provided that the participating creditor, among other things:

• Holds or has acquired its eligible participating debt in compliance with the relevant provisions of the RSA;

• Votes the entire aggregate amount of its eligible participating debt in favor of each scheme at each scheme meeting or the consent solicitation at each perpetual securityholders’ meeting, as applicable. A participating creditor that does not vote the entire aggregate amount of the eligible participating debt in favor of each scheme at each scheme meeting or consent solicitation at each perpetual securityholders’ meeting (as relevant) will not be entitled to any consent fee; and

• Has not exercised its rights to terminate the RSA nor breached any of the relevant terms and conditions of the RSA in any material way.

In addition, the company will pay a “work fee” to the ad hoc group. The fee is (i) $2 million, which will be paid to the group within six months of the restructuring effective date; and (ii) an amount equal to $6 million minus the aggregate amount of the cash consent fee.

Restructuring consideration

For each $1,000 of scheme creditors’ claim on the restructuring effective date, each scheme creditor will be entitled to the following:

• $33.6 principal amount of series 1 new notes;

• $201.5 principal amount of series 2 new notes;

• $302.2 principal amount of series 3 new notes; and

• $440.4 principal amount of series 4 new notes.

The terms of the perpetual securities will be amended through a consent solicitation on the restructuring effective date to include a mandatory call option such that the company will be permitted and required to redeem all outstanding perpetual securities with the new notes in an aggregate principal amount equal to the perpetual securityholders’ claims.

For each $1,000 of perpetual securities, a perpetual securityholder will be entitled to the following:

• $33.6 principal amount of series 1 new notes;

• $201.5 principal amount of series 2 new notes;

• $302.2 principal amount of series 3 new notes; and

• $440.4 principal amount of series 4 new notes.

New notes

The new notes to be issued to all scheme creditors (including, among others, the series 1 new notes to be issued to consenting creditors only as part of the consent fee) on the restructuring effective date will have an aggregate original principal amount equal to the aggregate scheme creditors’ claims and will comprise four series as follows:

• Series 1 notes with $237 million original principal amount plus, to the extent that there is any additional scheme in-scope debt (described below), 5.6% of the additional amount (representing about 5.6% of the new notes aggregate amount);

• Series 2 notes with $853 million original principal amount plus, to the extent that there is any additional scheme in-scope debt, 20.1% of the additional amount (representing about 20.1% of the new notes aggregate amount);

• Series 3 notes with $1,279,000,000 original principal amount plus, to the extent that there is any additional scheme in-scope debt, 30.2% of the additional amount (representing about 30.2% of the new notes aggregate amount); and

• Series 4 notes with $1,863,000,000 million original principal amount plus, to the extent that there is any additional scheme in-scope debt, 44% of the additional amount (representing about 44% of the new notes aggregate amount).

The new notes to be issued to all scheme creditors on the restructuring effective date will be consolidated with and form the same series as the new notes to be paid to the perpetual securityholders by Zhenro as redemption price in accordance with the mandatory call option described under the restructuring consideration for perpetual securityholders.

Tenors are four, five, six and seven years for the series 1, 2, 3 and 4 notes, respectively.

Interest is 5% cash or 6% PIK for the series 1 and series 2 notes; 5½% cash or 6½% PIK for the series 3 notes; and 6% cash or 7% PIK for the series 4 notes.

The Regulation S notes will have mandatory redemption and optional redemption provisions.

The terms of the new notes will be substantially the same as those set out in the indenture governing Zhenro’s September 2024 notes (described below).

In-scope debt

The existing senior notes involved in the scheme include the following 15 series (all issued by Zhenro unless specified otherwise), along with five other series that were redacted from the schedule attached to Tuesday’s announcement:

• $7 million outstanding New York law-governed 5.95% senior notes due March 2022 issued by ZhenAn Glory Investment Ltd., a joint venture of Zhenro and guaranteed by Zhenro;

• $23,361,000 outstanding New York law-governed 5.98% senior notes due April 2022;

• RMB 10.02 million New York law-governed 7 1/8% senior notes due June 2022;

• $29,777,000 outstanding New York law-governed 8.7% senior notes due August 2022;

• $31,239,000 outstanding New York law-governed 6½% senior notes due September 2022;

• $728,623,000 outstanding New York law-governed 8% senior notes due March 2023;

• RMB 1,589,980,000 outstanding New York law-governed 8% senior notes due March 2023;

• $300 million outstanding New York law-governed 9.15% senior notes due May 2023;

• $200 million outstanding New York law-governed 8.3% senior notes due September 2023;

• $200 million outstanding New York law-governed 8.35% senior notes due March 2024;

• $290 million outstanding New York law-governed 7 7/8% senior notes due April 2024;

• $340 million outstanding New York law-governed 7.1% senior notes due September 2024;

• $350 million outstanding New York law-governed 7.35% senior notes due February 2025;

• $400 million outstanding New York law-governed 6.63% senior notes due January 2026; and

• $300 million outstanding New York law-governed 6.7% senior notes due August 2026.

The company may also designate, at its discretion from time to time, additional debt as scheme in-scope debt, up to an additional amount. The additional amount was also redacted from the attached schedule.

The perpetual securities involved in the scheme refer to the English law-governed senior perpetual capital securities (ISIN: XS2013512608), with $200 million aggregate principal amount outstanding.

Specified assets were redacted from the schedule attached to Tuesday’s notice as well.

Contact details

Accession letters and electronic consents are to be delivered to the information agent, D.F. King (Zhenro@dfkingltd.com; +852 5808 1747 or +44 20 4578 1471).

Further information on the offshore holistic liability management solutions can be found on the transaction website (https://www.dfkingltd.com/zhenro).

Requests for information can be directed to the company’s financial advisers: Alvarez & Marsal Corporate Finance Ltd. (ProjectZhenro@alvarezandmarsal.com) and Ernst & Young (China) Advisory Ltd. (ProjectZhenro@cn.ey.com).

Zhenro is a Shanghai-based real estate developer.

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