China’s Zhongliang details timeline for restructuring

By Mary Katherine Stinson

Lexington, Ky., Jan. 11 – Zhongliang Holdings Group Co. Ltd. reported the outcome of its convening hearing held on Jan. 9, according to a notice.

The court has set the scheme meeting hearing at 10 p.m. ET on Feb. 8.

The sanction hearing will occur at 8:30 p.m. ET on Feb. 22.

The company will make further announcements when appropriate, it stated in the notice.

Background

As previously reported, Zhongliang has been working with creditors of its $18,653,000 outstanding 8½% senior notes due May 2022, the $12,574,000 outstanding 9½% senior notes due July 2022, the $200 million outstanding 12% senior notes due April 2023, the $224,224,517 outstanding 8¾% senior notes due April 2023 and the $473,848,483 outstanding 9¾% senior notes due December 2023.

The agreement replaces the term sheet, which was signed on May 31, but the terms are substantially the same.

Broad-based support is required to implement the holistic solution, and the company is asking all creditors to accede to the agreement.

The company plans to implement the holistic solution through a scheme in Hong Kong.

The scheme debts are the only class of debts under the scheme.

Under the scheme, new senior notes and new convertible bonds will be issued to scheme creditors.

The longstop date is April 30, 2024 as a restructuring effective date.

The agreement will terminate if the court rejects an application to convene a scheme meeting, the requisite majority of scheme creditors do not approve, the court does not grant a sanction at the sanction hearing prior to the longstop date, a final winding-up order mandated by the court, at the time of restructuring effective date or on April 30, 2024.

Scheme consideration

The consideration under the scheme would include an upfront 1% cash payment on the outstanding principal amount.

The other 99% of principal amount will be accounted for with a combination of new senior notes and new convertible bonds, plus all accrued interest to the earlier of a restructuring effective date and a reference date. There is a $140 million cap on the amount of convertible bonds that will be issued.

The new senior notes will be 3.5-year notes with a 5% coupon. The company will redeem 5% of the notes 18 months after the restructuring date, another 5% 24 months after the restructuring date, 5% more 30 months after the restructuring effective date and then 10% 36 months after the restructuring date. There will be an extra 5% redeemed 12 months after the restructuring date if the company posts more than RMB 120 billion sales from Jan. 1, 2023 through nine months after the restructuring date. The repayment schedule gets revised if accumulated sales exceeds RMB 160 billion or RMB 180 billion.

The extra 6% of senior notes may be redeemed for the first 12 months after the restructuring date at 83.3. The new senior notes may be redeemed at par at any time.

An additional 6% of new senior notes will also be distributed.

The convertible bonds also have a 3.5-year term.

Interest is 3%, payable in cash or in kind. After the beginning of the second year, though, interest must be paid in cash.

The convertibles may be redeemed early at par.

There is also a mandatory redemption schedule for the new convertible bonds, with 3% redeemable after 18 months, another 3% redeemable after 24 months, a third 3% redeemable starting after 30 months and 6% redeemable after 36 months.

More convertible bonds must be redeemed early if accumulated sales exceed RMB 120 billion, RMB 160 billion or RMB 180 billion.

Under all these terms, the restructuring date is a stand-in for the earlier of the restructuring date and a reference date.

Details

Consenting creditors will receive a fee equal to 0.25% of the aggregate principal amount of their eligible restricted debts.

D.F. King & Co., Inc. is the information agent (+852 5808 2134, +44 20 8089 4257, Zhongliang@dfking.com).

The transaction website is https://www.dfkingltd.com/zhongliang.

Guotai Junan International is the financial adviser for the company (dcm.zhonglianglm@gtjas.com.hk).

Sidley Austin is the legal adviser for the company (SidleyProjectRise2023@sidley.com).

Alvarez & Marsal Corporate Finance Ltd. is the financial adviser (ProjectNexus@alvarezandmarsal.com).

Latham & Watkins LLP is the legal adviser for the ad hoc group (PROJECTPEACE2023.LWTEAM@lw.com).

Zhongliang is a residential property management company based in Shanghai.

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