Luckin Coffee’s scheme of arrangement effective as of Dec. 17

By Sarah Lizee

Olympia, Wash., Dec. 22 – Luckin Coffee Inc.’s scheme of arrangement became effective on Dec. 17, according to a press release.

The scheme was proposed by Luckin Coffee with the support of its joint provisional liquidators, in relation to the restructuring of its $460 million 0.75% convertible senior notes due 2025.

As previously reported, Luckin Coffee’s creditors voted unanimously to approve the scheme.

At a hearing before the U.S. Bankruptcy Court for the Southern District of New York on Dec. 16, the bankruptcy court granted the joint provisional liquidators’ motion for entry of a final order giving full force and effect to the scheme in the United States. The bankruptcy court entered the scheme enforcement order the following day.

The restructuring contemplated in the scheme is expected to become effective on or about Jan. 28.

Under a restructuring support agreement inked in March 2021, holders will receive, for each $1,000 principal amount and unpaid interest of the existing convertibles, cash in an amount of $320, representing a recovery of 32% of par, $230 principal amount of 9% one-year senior secured notes, representing a recovery of 23% of par, $300 principal amount of 9% five-year senior secured notes, representing a recovery of 30% of par, and a number of American Depository Shares of Luckin Coffee valued at $60, representing 6% of par.

Additionally, if Luckin Coffee is able to raise equity in the amount of $50 million or more prior to the effective date of the restructuring, then each holder of existing convertibles will have the option to elect to replace up to $100 principal amount of new one-year notes per $230 principal amount with ADSs, or if ADSs are not available, new five-year notes and/or cash, subject to a top-up mechanism that guarantees a recovery of 150% on the equity conversion amount, representing an additional recovery of up to 5% of par.

Luckin Coffee is advised by Davis Polk & Wardwell LLP as legal counsel, Harney Westwood & Riegels as Cayman Islands legal counsel and Houlihan Lokey as financial adviser. The joint provisional liquidators are represented by DLA Piper LLP (US) in the United States and Campbells LLP in the Cayman Islands.

The coffee chain is based in Beijing. The company filed Chapter 15 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on Feb. 5, 2021 under case number 21-10228.

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