China Evergrande Group files Chapter 15 bankruptcy in New York

By Sarah Lizee

Olympia, Wash., Aug. 18 – China Evergrande Group filed Chapter 15 bankruptcy on Thursday in the U.S. Bankruptcy Court for the Southern District of New York to gain recognition of its proceedings in Hong Kong.

A foreign representative for the company said in court documents that the group historically adopted a high-debt, high-leverage, high-turnover model to expand its operations, which created a massive debt burden on the group and resulted in deterioration of capital with respect to its main sector of real estate business.

Since the second part of 2021, the group’s real estate transaction volumes, the area sold, and the amount of sales have all declined, leading to reduced cash generation while the group experienced liquidity pressures due to limited access to external capital.

As of Dec. 31, 2022, Evergrande had about RMB 198.3 billion in debt, including current borrowings of about RMB 2.3 billion, non-current borrowings of about RMB 99.6 billion, amounts due to subsidiaries of RMB 94.8 billion, and RMB 1.7 billion in dividends payable. The group estimates RMB 98.8 billion in assets as of Dec. 31, 2022.

The group has been defaulting on its debt since December 2021, and has been negotiating with its customers, suppliers, shareholders, and onshore and offshore creditors since then.

In April, Evergrande entered into restructuring support agreements with some class A and C debtholders. Debtors Scenery Journey and Tianji Holding Ltd. entered into RSAs at the same time with some of their debtholders as well.

Evergrande scheme terms

Through Evergrande’s class A and C schemes, scheme creditors will receive certain rights and interests in new consideration. As of July 31, creditors holding about $12.3 billion of the class A debt (representing about 86.5% of the total outstanding principal amount of all class A debt) and creditors holding about $5 billion of class C debt (representing about 39.6% of the outstanding principal amount of all class C debt) had acceded to the Evergrande RSAs.

Through the schemes, Evergrande seeks to restructure existing debt to release the claims of creditors who have claims against it, as well as the relevant subsidiary guarantors.

In return, each scheme creditor may elect the consideration they receive.

Under option one, scheme creditors can exchange their claims for new notes (A1/C1 notes) to be issued by the debtor at a 1:1 conversion ratio. The new notes will comprise three tranches, with tenors of 10 to 12 years, and will be repaid over time at interest rates of between 2% and 3% per annum if all interests are paid in cash, and between 3% and 4% per annum if any portion of interests is paid in kind.

Through option two, scheme creditors can elect to exchange their claims for either of the following:

• New notes to be issued by Evergrande with tenors of five to nine years (A2/C2 notes);

• A package of five equity-linked instruments (the A2/C2 package), which are either secured over, linked to, mandatorily exchangeable into, or mandatorily convertible into listed shares of Evergrande, Evergrande Property Services Group Ltd. or China Evergrande New Energy Vehicle Group Ltd.; and

• A combination of the above.

Class A creditors’ entitlements to distribution will be on a full accrued claim basis. Class C creditors’ entitlements to distribution will be on a deficiency claim basis, which means the full accrued claim minus the assessed value of any related rights which are against any party that is not China Evergrande Group.

Scenery, Tianji scheme terms

Scenery Journey plans to implement a restructuring through a scheme of arrangement in the British Virgin Islands. The creditors consist of holders of four series of U.S. dollar-denominated senior notes issued by Scenery Journey.

The creditors’ entitlement to distribution will be on a deficiency claim basis, like the class C creditors above.

Each creditor will be allocated a pro rata portion of the new notes to be issued by Scenery Journey in an aggregate principal amount of $6.5 billion, based on the creditors’ entitlement.

Tianji plans to restructure its debt in a scheme of arrangement in Hong Kong. The Tianji debt consists of guarantee obligations under the Scenery notes and other debt.

Creditor entitlements will again be on a deficiency claim basis.

Each creditor will be allocated a pro rata portion of $800 million principal amount new Tianji notes.

Coming up

Scheme meetings are scheduled for Aug. 23 in Hong Kong.

The company has asked for a Sept. 20 Chapter 15 recognition hearing and is hoping the restructuring to go effective on Oct. 2.

Sidley Austin LLP has been retained as counsel to the debtors.

The real estate development company is based in Shenzhen, China. The Chapter 15 case number is 23-11332.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.