Huachen Energy’s Chapter 15 case closed by bankruptcy court

By Sarah Lizee

Olympia, Wash., Aug. 10 – Huachen Energy Co., Ltd.’s Chapter 15 bankruptcy case was closed Tuesday by the U.S. Bankruptcy Court for the Southern District of New York, according to an order.

As previously reported, foreign representative Ernst & Young Hua Ming LLP gave a final report for the case and asked the court to close it.

The company filed the Chapter 15 case to gain U.S. recognition of its proceedings in the Intermediate People’s Court of Beijing.

Ernst & Young Hua Ming said the case had been fully administered.

Background

From around July 2018, the company started to encounter a “challenging funding environment and liquidity pressure,” which coincided with the tightening of China’s financing policies and debt defaults by its parent company, Wintime Energy Co., Ltd., Minhai Liang, a representative of Ernst & Young Hua Ming, said in a declaration.

On Nov. 18, 2019, Huachen defaulted on the interest payments then due on its 6 5/8% senior secured notes due May 18, 2020. On Jan. 20, 2020, some noteholders declared the outstanding principal amount on the notes to be immediately due and payable.

In response, the company decided to pursue a restructuring of the notes. After that, the company took part in discussions with an informal group of noteholders advised by Kirkland & Ellis and Houlihan Lokey over the terms of the restructuring.

At around the same time, Wintime Energy underwent its own bankruptcy reorganization proceeding. In December 2020, the Intermediate People’s Court of Jinzhong Municipality, Shanxi Province, ruled that Wintime Energy had completed its reorganization plan. However, Wintime Energy’s reorganization plan did not cover Huachen or its assets, nor did it seek to resolve or compromise Huachen’s debt.

Plan terms

Under Huachen’s plan, the maturity of the notes is being extended through 2026, and interest is being reduced to 4.65% and a portion of it will be paid in kind.

Additional security interests are being granted to secure the company’s obligations in respect of the notes, including a specified portion of the 26.67% partnership interest held by the debtor in Shanghai Runliangtai Internet of Things Technology Partnership, and a specified portion of the 10% equity interest held by Huayuan New Energy Co., Ltd. in Definite Arise Ltd.

The plan applies to both its onshore creditors, which comprise holders of the company’s renminbi bonds and other ordinary claims, and the noteholders. In particular, both groups were to receive substantially the same economic outcomes under the plan. The way the plan was to be implemented, however, differed between the groups.

While onshore creditors would receive repayments of their claims and interest payments directly under the plan, the noteholders would receive repayments and interest payments under an amended and restated indenture and the restructured notes.

The company said the reason for this is that it is critically important to the noteholders that the restructured notes continue to be tradable instruments, whereas ongoing tradability of debt is not a major concern for onshore creditors, including renminbi bondholders.

“The plan is the means by which the financial restructuring is to be implemented and will significantly reduce debt service costs, increase liquidity and facilitate the operation of the debtor’s business in a stable manner going forward,” Liang said in the declaration.

In December 2021, each class of voting creditors present at a meeting voted to approve the plan. After receiving the needed votes in favor of the plan, the Chinese court approved the plan.

The Beijing-based electricity company filed Chapter 15 bankruptcy on Jan. 4, 2022 under case number 22-10005.

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