RiseSun Real Estate unit files Chapter 15 bankruptcy in New York

By Sarah Lizee

Olympia, Wash., Feb. 14 – A special purpose vehicle owned by RiseSun Real Estate Development Co., Ltd.’s subsidiary, RiseSun Land Development (Hong Kong) Ltd., filed Chapter 15 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on Monday to gain recognition of its restructuring proceedings in the High Court of the Eastern Caribbean Supreme Court.

The SPV, RongXingDa Development (BVI) Ltd., issued $500 million of 8% senior notes due April 24, 2022 (ISIN: XS1979285571) and $300 million of 8.95% senior notes due Jan. 18, 2022 (ISIN: XS2280638607). On Jan. 14, the coupon rate on all of the existing notes was increased to 9½%. As of Jan. 17, there was $779.7 million outstanding under the existing notes.

The proceeds were transferred to RiseSun by way of an intercompany loan. The debtor has no other significant assets other than the loan and no other significant liabilities other than the notes.

The company did not make payment of all amounts due and payable under the notes due in January upon the final maturity date.

Given that the debtor is a non-operating entity, the payment under the existing notes was intended to be paid by RiseSun through operating income, net profit, cash flow from operating activities and other financing sources of the company.

A decline in property sales and difficulty in obtaining funding from onshore and offshore capital markets, however, precipitated the need for alternative restructuring options, a foreign representative for the debtor said in court documents.

“During the second half of 2021, Chinese property developers and the capital markets that funded the growth and development of the sector have experienced an inflection point,” the foreign representative said.

“Reduced bank lending for real estate development has resulted in reduced access by property developers to PRC capital.

“In addition, reduced bank lending for buyers seeking mortgage financing, as well as buyers’ concerns about the ability of property developers to complete projects, has resulted in reduced property sales.”

Adverse reaction to these events by international capital markets has limited the company’s funding sources to address upcoming maturities, the foreign representative said.

Prior to the Chapter 15 filing and foreign proceedings, commercial bills and wealth management products in China issued or guaranteed by RiseSun or its subsidiaries became due. RiseSun has been actively negotiating with creditors to resolve any issues regarding the payment maturities within a reasonable timeframe.

On Dec. 10, the debtor appointed Haitong International Securities Co. Ltd. as financial adviser and Sidley Austin as legal adviser to assist in debt restructuring negotiations with holders of the existing notes.

On Dec. 16, the debtor launched an exchange offer and consent solicitation for the notes to extend the debt maturity profile, strengthen the balance sheet and improve cash flow management. By the end of the exchange offer and consent bid, 75% of all existing notes were tendered for exchange. However, the debtor didn’t get enough support from holders to effect the exchange. As such, the debtor terminated the exchange and said it would seek to effect a restructuring of the existing notes through a scheme of arrangement.

Under the restructuring, creditors will receive the following:

• A cash redemption equal to 5% of the outstanding principal amount of the existing notes held by each scheme creditor as of the record time;

• New 9½% notes due 2023 and 2024 in a total principal amount equal to 95% of the outstanding principal amount of the existing notes held by each scheme creditor as of the record time and, without double counting, any residual new notes; and

• Accrued interest on the existing notes up to but excluding the transaction effective date at a rate of 8.95% per year for the January notes and 8% per year for the April notes up to and including Jan. 13, and 9½% per year for each series thereafter, in cash.

The scheme also provides for releases of certain claims against the debtor, RiseSun and their affiliates.

If the scheme is approved, a sanction hearing will be held on March 10.

A Chapter 15 recognition hearing is scheduled for March 15.

RiseSun is a Langfang, China-based property developer. The Chapter 15 case number of RongXingDa Development is 22-10175.

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