In early February 2013, State-owned coal miner Solid Energy announced it was in financial trouble, carrying unsustainable debt of close to $400m that needed to be restructured in order to turn the situation around.
Thanks to Kiwi law firms Simpson Grierson
, Chapman Tripp
, Minter Ellison Rudd Watts and Mayne Wetherell; alongside banks ANZ, BNZ, Commonwealth Bank of Australia and Westpac New Zealand, the deal was successfully completed in October of 2013.
The restructure saw Solid Energy's key commercial funders swapping $75 million of their $400 million debt funding for redeemable preference shares (RPS).
In more detail, the restructure involved two cross-conditional creditors' compromises that saw: The bank lenders extending their existing debt (on modified terms) for three years; the bank lenders and one noteholder swapping NZ$75 million of debt funding for RPS in Solid Energy; the New Zealand Crown (as shareholder) buying NZ$25 million of RPS for cash; and the Crown offering Solid Energy new secured credit facilities of up to NZ$130 million for three years.
The compromises were unsuccessfully challenged in court by one bank lender, Bank of Tokyo-Mitsubishi UFJ Ltd (Auckland branch).
Simpson Grierson, Chapman Tripp
and Minter Ellison Rudd Watts spoke to NZ Lawyer
about the intricacies of such a complex deal, its trials and tribulations and the eventual victory that led to the teams involved receiving the illustrious Konica Minolta "New Zealand Deal of the Year” award at the New Zealand Law Awards.
In early 2013 Solid Energy found itself with a high level of debt, a high NZ dollar and a stubbornly low coal price - the perfect storm for a coal mining and exporting company.
The new board of directors' solution was a planned divestment of its non-core assets and an arrangement with its key stakeholders – the banks that made up the vast bulk of its creditors and its shareholder, the Crown – providing it with time, enhanced liquidity and a stronger balance sheet.
Solid Energy utilised the provisions of Part 14 of the Companies Act 1993, which provides for reluctant creditors to be bound into compromises which have the requisite majority creditor support. Two compromises were proposed: the first provided for a rescheduling of the company's five existing bilateral bank term debt and performance bond facilities into a syndicated facility; and the second provided for a debt‑for‑equity exchange under which a portion of each bank's debt was effectively converted into equity in the form of non‑voting redeemable preference shares.
Both compromises were interdependent, so that if either compromise failed to reach the requisite level of creditor support then neither compromise would proceed. The Crown separately agreed to provide the company with additional working capital facilities and subscribe for new equity in the form of redeemable preference shares, conditional on the compromises being approved.
Part 14 compromises are not common in New Zealand, and several aspects of the Solid Energy proposal were novel. This included the use of a Part 14 compromise to convert five separate bilateral facilities from different banks into a single syndicated facility with a facility agent, and the converting of existing debt into equity.
The establishment of the appropriate creditor classes for each compromise, and the determination of the number of votes attributable to creditors with different kinds of exposures (outstanding loans, uncalled performance bonds and obligations under equipment leases) were critical components of the compromise structure.
In October 2013 the compromise meetings were held, and the compromises were approved with the requisite majorities and put in place.
A dissenting bank unsuccessfully challenged the compromises in the High Court, and did not appeal the High Court's decision.
The Simpson Grierson team included partners Kevin Jaffe and Peter Eady, special counsel Steve Flynn, and senior associate Josh Cairns.
We advised four of Solid Energy’s major banks on their exposure to Solid Energy’s deteriorating financial position and were ultimately successful in negotiating a financial restructuring package involving the Government and Solid Energy’s banks.
It was a particularly interesting role for us because of the variety of stakeholder interests involved, which led to nine months of complex and difficult negotiations with multiple parties to achieve a restructuring.
The final restructuring package we negotiated was complex and novel. Implemented by way of a Part 14 creditors’ compromise and a contemporaneous extraordinary resolution of noteholders, it converted some of the company’s bank debt and term notes into redeemable preference shares, which helped to reduce the level of debt.
The creditors’ compromise process was immediately challenged by Bank of Tokyo Mitsubishi UFJ, Limited and we successfully represented the other four banks in the litigation. A Part 14 creditors’ compromise is a unique arrangement allowed under New Zealand Companies legislation. The litigation brought by BTMU against Solid Energy and other banks has resulted in New Zealand’s leading judgment on the application of this legislation.
The eventual result was a good one for our clients - the financial restructuring package was successfully completed and the High Court dismissed all causes of action challenging the Creditors’ Compromise.
The Chapman Tripp team included partners Mark Reese, Michael Arthur, Michael Harper, Graeme Olding and senior associates Jane Innes-Jones, Chad Morgan and James McMillan.
Minter Ellison Rudd Watts
The restructure involved the largely untried Companies Act part 14 compromise as the means by which Solid Energy’s debt restructure was implemented.
We identified and undertook the initial analysis of the viability of the potential use of a Companies Act part 14 compromise as a means by which the significant debt funders of Solid Energy could agree to and carry a binding restructure of Solid Energy’s debt funding.
At the same time, as part of that process, we undertook a thorough review of the Solid Energy group’s assets and liabilities in a range of different contexts, and considered and provided the structure and documents to implement a range of interim financial support solutions.
The Minter Ellison Rudd Watts team included partners Chris O’Brien, Patricia Green, John McCay, Paul Foley, Sean Gollin, Rachel Devine and senior associate John Conlan.