Yuzhou Group updates on debt restructuring and business development

Chicago, Aug. 7 – China’s Yuzhou Group Holdings Co. Ltd. provided an update regarding work the company has done with its advisers and an ad hoc group of offshore senior notes on a restructuring plan that will allow the company to right size its balance sheet and continue business as a going concern, according to an announcement.

The ad hoc group is comprised of holders of 29% outstanding principal amount of existing senior notes.

Over the past few months, the restructuring proposal has been shaping up and the bid-ask gap on various economic terms have narrowed, the company said.

While not final, the company outlined the current state of discussions.

Plan

Existing noteholders would be given three options.

Roughly, they could convert their existing notes into different new dollar-denominated notes and/or newly issued ordinary shares of the company.

Option 1

In the first option, creditors would receive new notes with a short-term maturity.

There would an upfront repayment on the first day and principal amortization during the three-year tenor.

Interest would be paid in cash (not in kind).

Repayment could be potentially accelerated under cash sweep provisions from a disposal of certain investment properties or dividend distributions from certain foreign-owned entities held by the company’s subsidiaries.

Option 2

Creditors under option 2 would receive four different tranches of medium-term notes, newly issued shares of the company and long-term notes.

Interest on the medium-term notes could be paid in cash or in kind for the first three years, after which interest would be paid in cash.

If the notes issued under option 1 were to be repaid before the maturity date, payments on the medium-term notes would be accelerated with immediate payments of cash interest and access to proceeds from the cash sweep.

Shares of the company would be exchanged in exchange for a waiver of certain outstanding amounts under the existing notes that would be subject to the exchange into medium-term notes.

The long-term notes would be issued in exchange for the accrued interest under the existing notes, with one dollar of new notes issued for every two dollars of accrued interest.

Option 3

Creditors who select the third option would receive long-term notes, at zero interest, but with no haircut on the outstanding principal amount of existing notes.

Option 3 would be the default for creditors who fail to make a selection.

Perpetual and guaranteed

Creditors who hold existing senior perpetual securities and/or guaranteed notes who elect for either option 1 or option 2 would receive an adjustment of a further multiplier of 3.25 to 1 to reflect the difference in terms compared with senior notes.

The holders of senior perpetual securities and/or guaranteed notes would also benefit from an improved credit enhancement package and access to the proceeds from a cash sweep.

Cash sweep

The cash sweep would be funded with 70% of the net proceeds from the disposal of 33 investment properties and 70% of the distributions and/or realizations by the shareholders of five project companies held by the company’s subsidiaries.

The estimate is that these assets would generate $1.9 billion of cashflow.

Ad hoc group pushback

The ad hoc group has a counterproposal.

The sticking points include that all accrued interest of the senior notes since the company’s default in May 2022 will be treated in the same manner as the senior notes’ outstanding principal in the restructuring.

Further, in terms of the short-term note, the ad hoc group advocates for less write-off on the principal and an increase in the overall coupon, with payment in kind interest. Also, the short-term notes would semiannual amortization beginning immediately after the restructuring date.

Also, the group wants to increase the percentage on the cash sweep to fund a redemption on the short-term notes at par plus accrued interest.

For the medium-term notes, the group is pushing for a lower debt-to-equity valuation under the medium-term notes so that the holders will receive the majority of the company’s enlarged share capital post-restructuring.

Also, the group wants to, in terms of the allocations on the series of medium-term notes, increase the size of the first two tranches and decrease the size of the third tranche.

Again, on option 2, the groups wants to increase the coupons on each of the medium-term notes tranches.

Listed debt

The listed existing offshore debt securities for the group are the following:

• $650 million 6% senior notes due 2023 (ISIN: XS1508493498);

• $500 million 8 ½% senior notes due 2024 (ISIN: XS1954963580);

• $500 million 8 3/8% senior notes due 2024 (ISIN: XS2073593274);

• $400 million 7.7% senior notes due 2025 (ISIN: XS2121187962);

• $500 million 8.3% senior notes due 2025 (ISIN: XS2085045503);

• $645 million 7 3/8% senior notes due 2026 (ISIN: XS2100653778);

• $300 million 7.85% Green senior notes due 2026 (ISIN: XS2215399317);

• $562 million 6.35% Green senior notes due 2027 (ISIN: XS2277549155); and

• $300 million 5 3/8% Senior Perpetual Securities (ISIN: XS1692346395).

Parties

The company’s financial advisers are Alvarez & Marsal Corporate Finance Ltd., BOCI Asia Ltd. and Haitong International Securities Co. Ltd.

The company’s legal adviser is Linklaters.

The ad hoc group has been advised by PJT Partners and Kirkland & Ellis.

The property developer is based in Shanghai and Shenzhen, China.

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