New Cotai scrambling to participate in Studio City equity offering

By Caroline Salls

Pittsburgh, July 22 – New Cotai Holdings, LLC requested court approval to participate in a Studio City International Holdings Ltd. private placement equity offering and obtain $137.85 million in debtor-in-possession financing to fund its participation in the offering, according to a motion filed Tuesday with the U.S. Bankruptcy Court for the Southern District of New York.

“Participation in the equity offering is critical to preserve the integrity of what is both the debtors’ sole material assets and the cornerstone of their proposed consensual plan of reorganization – a 23.07% interest in Studio City,” the motion said.

New Cotai said the equity offering was announced on July 7 and is expected to settle within days of its originally scheduled July 30 plan confirmation hearing.

The offering calls for a $450 million to $500 million equity raise as part of a larger transaction to refinance $850 million of Studio City bond debt due in 2021 and add liquidity to Studio City’s balance sheet to fund construction of a project.

New Cotai said investors must submit their intent to participate in the equity offering and accept the offer by July 31, with closing and settlement expected to occur during the first week of August.

The company said failure to participate in the offering also exposes New Cotai to a potential “squeeze-out merger” under Cayman law by Studio City majority shareholder Melco Resorts & Entertainment Ltd. Meaning Melco could force New Cotai to transfer its shares to Melco or have the shares cancelled without appraisal rights.

According to the motion, New Cotai’s plan is based on a debt-for-equity swap, which ties creditor recoveries to the economic value of the company’s Studio City shares.

New Cotai said the proposed new DIP facility will replace its existing DIP credit agreement and will consist of a $6.55 million tranche A that will be used to refinance the original DIP facility, a $116.3 million tranche B facility that will be used to fund the company’s initial purchase of shares in the equity offering and an up to $15 million tranche C that will be used to fund New Cotai’s potential oversubscription in the equity offering.

Given the abbreviated timing, the company said it has not yet finalized the new DIP financing documents, but it has reached an agreement in principle with substantially all of its bondholders.

The company said it has offered the opportunity to fund its participation in the equity offering to all holders of its pre-bankruptcy funded debt.

Debtholders who wish to participate in the new DIP facility must submit their subscription forms by July 23. New Cotai said it expects holders of more than 99% of its pre-bankruptcy notes to participate in the new DIP facility.

Interest on the new facility will accrue at 10%, payable fully in-kind.

The new facility will mature 90 days after closing.

A hearing is scheduled for July 24.

New Cotai is a Greenwich, Conn., developer, which owns gaming properties in Macau. The company filed bankruptcy on May 1, 2019 under Chapter 11 case number 19-22911.

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