Arora Vishal, Author at Debtwire
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LATAM restructurings in 2023 on pace to double 2022 cases – 1H23 LATAM Restructuring Insights

View the Restructuring Insights – LATAM 1H23 Report here.

Debtwire’s Restructuring Insights reports provide a high-level overview of new distressed market activity. This edition examines newly commenced and closed restructurings within Latin America as well as globally of LATAM-based companies during the first half of 2023. According to Debtwire’s Restructuring Database (RDB), restructuring situations in Latin America increased significantly from 2022, which saw only 11 situations throughout the entire year compared to 2023, where we have seen 15 situations just during 1H23.

Newly Commenced Cases

Brazil in particular has seen high-profile, in-court debt restructuring processes commenced in 1H23 including the multibillion judicial recovery filings of Brazilian retailer Americanas SA, electricity distributor Light SA, telecom services Oi SA and Cervejaria Petropolis. In Chile, a reorganizacion concursal was filed by Chile-based, Norway-listed salmon farmer  Nova Austral in 1H23. In addition, creditors of Mexican media group TV Azteca filed an involuntary Chapter 11 proceeding against the company with a US bankruptcy court, while Americanas and Oi have sought international recognition of their domestic reorganization proceedings by filing Chapter 15 cases in the United States. Similarly, oil services group Ocyan (formerly Odebrecht Oil & Gas) also commenced a Chapter 15 case in 1H23, in order to seek recognition of its extrajudicial recovery process (a proceeding similar to the US pre-packaged Chapter 11) filed in 2022 to restructure the company’s bond debt.

The remaining processes started in 1H23 did not involve the courts in the initial debt restructuring conversations, according to Debtwire‘s Restructuring Database. In Brazil, outsourcing specialist Atento SA, retailer Marisa Lojas SA, cement maker Intercement, chemical company Unigel, and construction company Odebrecht Engenharia e Construcao began out-of-court restructurings. Mexican Tangelo (Tangerine Pomelo Group SAPI de CV – formerly Mexarrend) also started out-of-court restructuring negotiations in January 2023, but ultimately filed for concurso (the country’s reorganization proceeding) in August 2023.

Food & beverage, real estate, retail and telecommunications were the busiest sectors for restructuring situations in 1H23, with two cases each. Four situations have more than USD 1bn in liabilities to be restructured, with Oi and Americanas topping the chart for largest cases.

On the advisory side, Moelis & Co led the financial advisors table, while Cleary Gottlieb Steen & Hamilton was at the top of the podium for legal advisors in 1H23, taking Americanas and Light bondholders’ mandates. In terms of creditors, the top position was occupied by Banco do Brasil, which was involved in five of the total cases started during the period; Itau UnibancoBradesco and Santander shared the second position, each of which participated in four 1H23 restructurings situations.

Closed Cases

Additionally, several restructurings were closed during the period covered by this report. This trend was mainly driven by restructurings in Brazil, which saw long standing in-court cases coming to an end for companies such as oil and gas services provider Lupatech  (started in 2015), sugar and ethanol producer Abengoa Bioenergia Brasil (2017), and Queiroz Galvao Energia (QGE) affiliates (i) Ibitu Energetica (formerly Queiroz Galvao Energetica SA) and (ii) Companhia Energetica Santa Clara (2019). More recently filed proceedings were also concluded, including the extrajudicial recovery filings of Ocyan and Andrade Gutierrez Engenharia.

Also closed during 1H23 were bankruptcy proceedings filed by Latin American companies in the US, including the Chapter 15 cases of Novonor (formerly Odebrecht SA) and Oro Negro, and Latam Airlines Chapter 11 cases. The Chile-based airline also concluded the ancillary recognition proceedings commenced both in Chile and in Colombia.

Additionally, the Chapter 11 cases commenced by Colombian airline Avianca Holdings and Alpha Latam Management – the US-based company that ultimately owns Mexican non-bank lender AlphaCredit – are also nearing an end.  In both cases, the reorganization plans were confirmed by the respective courts and the related proceedings of affiliates were all closed during 1H23, with in-court proceedings remaining open only for the main companies of each of the groups. Certain other companies in the region are also poised to emerge from bankruptcy in 2H2, including Brazilian sugar and ethanol producers Aralco and Atvos.

Explore the entire Debtwire Restructuring Database here (access required).

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Breaking News

Wheel Pros discloses liquidity enhancing deal with double-dip structure via cleansing docs

Wheel Pros released cleansing documents today, outlining a new money and refinancing deal struck with roughly 70% of its term loan lenders that will enhance the cash-strapped aftermarket wheel distributor’s liquidity by around USD 180m and deleverage it by about USD 137m, according to two sources familiar with the matter. In documents filed to the broader lender group, the Clearlake Capital-backed company offered the remaining 30% of its loan holders the opportunity to participate in the deal pro rata, with the new money backstopped by term lenders already committed to the deal, they added.

The fresh capital is set to come via a USD 235m SOFR+ CSA+ 887.5bps (2.5% floor) FILO due February 2028 that will carry a second-out first lien on ABL priority collateral and a first lien on TL priority collateral, the sources noted.

Under the deal, existing lenders will also fund a new S+ CSA+ 450bps first lien TL due May 2028 to enable open market purchases of the current TL, including an 85 purchase price for lenders participating in the FILO and 60 for lenders not taking part in the FILO, the sources continued. The new first lien TL will be issued at a newly-created restricted subsidiary, with proceeds funneling down to Wheel Pros via an intercompany loan pari passu to the existing TL, the sources said. In addition, the new TL will carry a secured guarantee at the company pari passu to the existing TL via a double-dip structure with a second claim on the same collateral, they noted.

Also as part of the deal, unsecured notes that were held by certain existing lenders already committed to the deal were sold for new 6.5% second lien notes due May 2028 held at the new restricted subsidiary, the sources went on.

Wheel Pros cited forecasts that absent the deal, liquidity from cash and ABL availability would decline from USD 14m in 2Q23 to negative USD 23m by 1Q24, the sources noted. Pro-forma liquidity is now expected to decline from USD 173m in 2Q23 to USD 136m in 1Q24, they said.

Akin Gump and PJT Partners are advisors to the lenders, while the company has been working with Kirkland & Ellis and Houlihan Lokey.

Wheel Pros’ existing USD 1.175bn Libor+ 450bps first lien TL due 2028 was last quoted 65.625/67.625, versus 66.019/68.433 at the start of the month, according to Markit. The term loan was quoted 70.116/72.313 on 1 May, prior to market fears that Wheel Pros could pursue a priming deal.

Its USD 365m 6.5% senior unsecured notes due 2029 last traded in size on 12 June at 33.75, according to MarketAxess. More recent odd lot trades have traded at a similar price.

A representative for Clearlake and Wheel Pros did not respond to requests for comment.

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Breaking News

Sino-Ocean offshore lenders still dither about rolling payments due 19 September

Sino-Ocean Group has yet to receive the needed unanimous consent from banks in three offshore syndicated facilities to roll over for nine months the 19 September installments already deferred from June, said two sources familiar with the matter.

In a meeting the banks held early last week with the China Life Insurance Co– and Dajia Life Insurance-backed developer, some said they were unwilling to roll, which prompted some of the other previously supportive lenders to dither, said the two sources.

The banks that said they are unwilling to roll attributed their reluctance partly to Sino-Ocean’s failure to perfect the share pledges that are supposed to be added to back the three loans as part of the rollover, said one of the two sources.

The objecting lenders are foreign banks, said the second source familiar.

Some lenders remain committed to the extension, said both sources.

As Debtwire reported on 20 June, the banks in the three loans unanimously agreed to defer to 19 September the final payment on an originally USD 800m-equivalent facility due-21 June loan as well as a June amortization each on syndicated loans due-June 2024 and due-June 2025.

The initial three-month extension was meant to provide Sino-Ocean Group with a window to finalize the further nine-month roll over of the payments – effectively to defer them by 12 months, as reported.

In exchange for the extensions, Sino-Ocean offered to provide security over its shares in the nine offshore units through which it indirectly holds all its projects, as reported.

Debtwire Par data shows that there is HKD 3.8465bn (USD 490m) and USD 70m remaining on the originally USD 800m-equivalent facility due 21 June and that Chinese banks were allocated 69.2% of the loan.

The other two loans comprise a USD 753.97m-equivalent due-June 2024 loan and a USD 712.93m-equivalent due-June 2025 loan. The sources didn’t detail how much is left on those.

Sino-Ocean also has an outstanding USD 200m club loan that closed in June 2022, for which this month’s initial amortization is also supposed to be included in the nine-month roll, as reported. The sources didn’t know the status of that extension effort.

The original lenders of the three syndicated facilities include in part HSBC, Hang Seng Bank, United Overseas Bank, Bank of China (Hong Kong), Agricultural Bank of China Hong Kong Branch and Industrial and Commercial Bank of China (Asia), as per Par data.

Sino-Ocean Group declined to comment.

Bond delays

Sino-Ocean only resumed talks with offshore lenders over the nine-month refinancing after it finally on 31 August obtained consent for a one-year term out for its CNY 2bn 4% corporate bonds due 2 August, said the first source familiar.

The developer is also struggling to pay coupons on its USD bonds. Sino-Ocean completed on 18 August a consent solicitation to defer each of its next three USD bond coupon payments for two months as well as waiving any default arising from the consent solicitations.  The three coupons were originally meant to be paid on 30 July, 4 August and 5 August.

China Life Insurance Co has fully written off its 29.59% stake in the developer, the state-owned insurer’s interim report released 23 August showed. The original investment value was CNY 11.245bn, as per the report.

Moody’s on 28 July cited expected weakened support from China Life to Sino-Ocean as a reason for downgrading the developer’s corporate family rating by one notch, to Caa2.

Chinese news outlet 36Kr reported on 1 June that Sino-Ocean Group’s two largest shareholders, China Life and Dajia Life, have established at the developer’s headquarters a joint working group with Sino-Ocean’s auditor, BDO Limited, to investigate the liquidity risk and assist in refinancing upcoming debt maturities.

Bloomberg reported on 3 July that the working group led by state-owned shareholders has engaged an adviser to conduct due diligence.

Sino-Ocean Group (China) issued a 6 July statement confirming that the two life insurers had formed a joint working group to “have a more comprehensive understanding of Sino-Ocean’s business operation”. It also said in the statement that the working group had hired a financial advisor to “provide services” for the working group, without naming the advisor.

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Beyond Meat: More revenue guidance cuts and cash burn – 2Q23 Credit Report


Beyond Meat (BYND) reported its 2Q23 earnings, which showed familiar themes: a 30% year-over-year (YoY) drop in revenue, a negative adjusted EBITDA of USD 41m, and a continuous decline in consumer demand in the steeply competitive market. BYND also once again cut its full-year 2023 (FY23) guidance to USD 360m-USD 380m, down from USD 375m-USD 415m in its previous quarter.

The company said that it plans to turn things around by distributing new products, marketing the health benefits of its products more heavily, and reducing prices. However, given its poor track record of meeting targets, BYND is seen as being prone to high execution risks. Confidence is extremely low that BYND will be able to achieve its goals, and there is also high uncertainty that its initiatives will materially improve the company’s performance and shift it away from its current trajectory towards more trouble.

BYND has failed to tame its high cash burn, and management has confirmed that it will not achieve its positive cash flow target in 2H23. According to our projections, we estimate that BYND will run out of liquidity by the end of 2Q24.


Competition & Valuation 

In our Comps table, the peer average NTM revenue multiples for large-cap and small-cap companies are 2.3x and 1.1x, respectively, compared to BYND’s higher multiple of 5.0x. BYND’s net leverage of 2.7x is also materially higher than the net leverage of its large-cap and small-cap companies peers (0.5x and 0.3x, respectively). We believe there is a strong downside opportunity for the company as we see it trade away from its current high multiple and towards its peers, especially Oatly, which trades at 1.2x EV/NTME.

Our waterfall valuation uses our base estimate for NTME revenue of USD 343m and EV/sales multiples of 0.1x-2.0x. We found the convertible debt has a recovery rate of 24%, 30% and 36% at the low, base and high case scenarios, respectively. Based on the same multiples, we found the equity valued at 0 compared to its current share price of 12.


Financial Performance

The company reported 2Q23 revenues of USD 102m, a 30.5% decrease YoY compared to USD 147m last year. The decline was driven by a 23.9% decrease in total pounds sold and an 8.6% decrease in net revenue per pound. All markets and channels were negatively impacted by weaker-than-expected demand for BYND category products, in particular the US retail market, which is its largest revenue stream. US retail channel net revenues decreased 38.5% YoY due to a 34.3% decrease in the volume of products sold, primarily reflecting weak category demand and the cycling of significant sell-in of Beyond Meat Jerky in the year-ago period. The 6.3% decrease in net revenue per pound was caused by higher trade discounts and changes in product sales mix, partially offset by increased pricing for certain items resulting from reduced sales to liquidation channels.

Overall US total net revenue fell by 40.1% YoY in 2Q23 to USD 61m, while total international net revenue fell by 8.7% YoY to USD 41m. The US foodservice channel experienced the largest decline, of 45.4%, primarily driven by sales to a large Quick Service Restaurant (QSR) that were not repeated and overall softer demand.

Gross profit was USD 2.3m, a 2.2% margin, from USD negative 6.2m, a negative 4.2% margin, last year. The improvement was impacted by lower materials costs, lower inventory reserves and lower logistics costs per pound. Gross profit and gross margin were partly improved because of a change in the Company’s accounting estimate associated with the estimated useful lives of its large manufacturing equipment made in 1Q23, which reduced COGS depreciation expense by approximately USD 5.1m, or 5.0 bps of gross margin, relative to depreciation expense utilizing the Company’s previous estimated useful lives.

BYND incurred a total operating loss of USD 53.8m, 55.2% margin, this quarter compared to a loss of USD 89.7m, 56.8%, in 2Q22, due to lower expenses from G&A, headcount, marketing and production trials. Total operating expenses decreased by 32% YoY and 12% sequentially to USD 56m. Adjusted EBITDA was negative USD 40.8m, or negative 40% margin in 2Q23 compared to an adjusted EBITDA loss of USD 68.8m, or negative 46.8% margin, in the year-ago period.

As for FY23, the company projects a net revenue range of USD 360m-USD 370m, a 14%-19% decrease YoY. Management also provided the following forecasts for the year:

  • Gross margin, including the positive impact of the Company’s change in accounting estimates for the useful lives of its large manufacturing equipment implemented in the first quarter of 2023, is expected to be in the mid to high single-digit range.
  • Operating expenses are expected to be USD 245m or less.
  • Capital expenditures are expected to range from USD 20m to USD 25m.


Business Overview

Beyond Meat is a plant-based meat provider founded in 2009 in El Segundo, California. The company produces meat substitutes directly from plants, an innovation that enables consumers to experience the taste and texture of meat while enjoying the nutritional benefits of eating plant-based products. The company’s distribution channels are split into two categories: Retail and Restaurant/Foodservice. Flagship products include The Beyond Burger, Beyond Sausage, Beyond Chicken Strips and Beyond Beef Crumbles. As of July 2023, BYND products were available at about 190,000 retail and foodservice outlets in over 75 countries worldwide.


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Legal Analysis

Light decision to withdraw from judicial recovery could streamline negotiations with creditors

Light SA’s board intends to have the company withdraw from the controversial and contentious in-court restructuring process it commenced a few months ago. Whether the Brazilian utility can indeed withdraw from the proceeding, however, depends on its creditors approving such a request. Given the contentions relationship Light has had thus far with its creditors, the plans to restructure its debt out-of-court may not be feasible, paving the way for a contested plan process, which may lead to an insolvency or creditor-proposed plan.

In this article, the Debtwire legal analyst team examines the legal issues related to the potential bankruptcy withdrawal request, highlighting how it could ultimately streamline the negotiations among the involved parties over the terms of a fair debt restructuring proposal.

Source: Debtwire’s Restructuring Database

Light’s multibillion-dollar debt restructuring process has been marked by litigation between the company and its financial creditors related to, among other things, certain controversial protective rulings made in favor of the company. These include the granting of a precautionary measure prohibiting creditors from commencing or moving forward with individual lawsuits against the company and a decision admitting a judicial recovery request made on behalf of Light’s holdco. The judicial recovery filing strategy was adopted by Light in order to circumvent restrictions that prohibited public electric energy services providers holding concession agreements with the country, such as subsidiaries Light Servicos de Eletricidade SA and Light Energia SA, from filing for bankruptcy.

Source: Debtwire’s Restructuring Database

Until recently, all appeals filed by creditors against the decisions issued by the court handling Light’s bankruptcy were by the Rio de Janeiro appellate courts, and to collect on amounts owed to creditors outside of the protections granted to the company were similarly overruled by the court. Thus, the indication that the company could withdraw from the bankruptcy process in order to move forward with out-of-court negotiations is surprising.

However, such a decision is not one for the company to make on its own. According to Sections 35, I, d and 52, § 4 of Brazilian bankruptcy law, judicial recovery withdrawal requests made after a court admits the protection request must be approved in a creditor meeting. The creditor support for this sort of request must be provided by the majority of claims impaired by the process in terms of amount, as set forth in Section 42 of the law.

At first glance, obtaining creditor support for this purpose does not appear to be an issue. Indeed, creditors have been arguing since Light first made its pre-insolvency filing that Light concessionaires are not permitted to file for bankruptcy or have a bankruptcy petition admitted by the court.

Source: Debtwire’s Restructuring Database

However, things could be more complicated than initially expected and creditors may prefer to remain in a judicial recovery proceeding. If Light does not receive sufficient creditor approval to withdraw from the case, the controversial rulings issued in favor of the company that have temporarily protected it from its creditors may be just temporary. The culmination of a judicial recovery process – the approval (or rejection) of the debt restructuring plan proposed by the company – may be the real leverage for creditors in a restructuring.

According to Brazilian law, if creditors reject the reorganization plan proposed by the company, then either: (i) the judicial recovery will be converted into a liquidation proceeding, in which the management of the business would be put in the hands of a judicial manager, and the assets of the company would be sold to repay creditors; or (ii) creditors could present an alternative plan, which could include, among other restructuring measures, a debt-for-equity swap transaction that would ultimately result in the creditors taking the control of the company.

Section 56, § 6 of the bankruptcy law provides that, to be submitted to a vote, creditor-proposed plans must meet certain requirements, including that (i) the plan must not impose new obligations on the company and its shareholders, nor lead them to a situation worse than they would be in the case of liquidation; and (ii) the creditor-proposed plan has the support of either 25% of the total claims impaired by the bankruptcy, or 35% of claims attending the meeting in which the company’s plan was rejected.

In Light’s case, it seems that these supporting percentages would not be hard to achieve, as the restructuring plan originally proposed by the company was considered “immoral” and “unfair” by a relevant portion of the impaired claimholders.

Therefore, in order to avoid the risk of losing control of the business and the debt restructuring process, the Debtwire legal analyst team believes that Light will try to reach an agreement with creditors on the terms of a plan, instead of filing a one-sided case withdrawal request. In the best-case scenario, this agreement could directly provide for a fair debt repayment proposal, via a consensual reorganization plan that would put an end to the disputes. Alternatively, such a plan could at least set the basis for an out-of-court renegotiation, in exchange for the creditors’ support for the closing of the case.

In both scenarios, creditor support could be evidenced by the presentation of consenting letters, thereby making a creditor meeting – to vote on either the plan or the withdrawal request – unnecessary. Just like the creditor-proposed plan possibility and related requirements, this alternative mechanism to evidence creditor support on a debtor proposal was introduced in the country’s bankruptcy regime via a major reform that was signed by the president in late 2020, became valid in early 2021 and was implemented in certain high-profile Brazilian bankruptcy cases, including Renova EnergiaSamarco Mineracao and Atvos.

One way or the other, it seems that Light SA’s debt restructuring talks with creditors – which have been moving at a slow pace during the last few weeks – are expected to be streamlined in the near-term, as a consequence of the company’s recently revealed intention to withdraw from its contentious bankruptcy process.

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Legal Analysis

Latin America Court Spotlight August 2023

Last month, Samarco Mineracaos reorganization plan was sanctioned by the court overseeing its judicial recovery process. The Brazilian mining company’s proposal relied on the terms of an agreement reached with its shareholders (Vale SA and BHP Billiton) and an ad hoc group of bondholders, putting an end to a long-running dispute that had been ongoing since the company filed for bankruptcy in April 2021. In addition, Credito Real bondholders reached the 50% threshold required for approval of the Mexican non-bank financial institution’s Restructuring Support Agreement (RSA), thereby opening room for a concurso mercantil filing, expected for the short-term.

Speaking of concurso filings, in August, Tangelo (formerly Mexarrend) commenced an in-court debt restructuring proceeding with the Second District Court for Commercial Insolvency Matters in Mexico City, which admitted the company’s bankruptcy protection request and appointed a visitador auxiliary to assist it in determining whether the company meets the law criteria established for a Mexican bankruptcy proceeding. In Brazil, online travel agency 123 Milhas filed for judicial recovery to restructure roughly BRL 2.3bn in debt.

Source: Debtwire’s Restructuring Database

Also in August, Chile-based salmon farmer Nova Austral presented its debt restructuring plan, centered on a debt-for-equity swap and asset sale proposals. The third group of AlphaCredit subsidiaries also presented its creditor agreement, while the creditor agreement proposed by the second group of subsidiaries of the Mexican non-bank financial institution was sanctioned by the court and appealed by dissident creditor AMF Mezzanine.

Source: Debtwire’s Restructuring Database

Other significant appellate-related news from last month included (i) an injunction granted by the Superior Court of Justice to suspend the appellate court ruling declaring Coesa (formerly OAS) insolvent; (ii) the rejection of an appeal filed by the Rio de Janeiro Public Prosecutor on the appointment of two firms to jointly act as judicial manager in Oi SA’s judicial recovery process; and (ii) the rejection of the appeal filed by Americanas SA creditor Bradesco against the participation of two foreign affiliates of the Brazilian retailer in the judicial recovery.

Source: Debtwire’s Restructuring Database

Light SA’s renegotiation talks with creditors were moving at a slow pace last month, with the electricity services provider focusing on efforts to bar the individual execution lawsuit commenced by Santander in July. Also in August, three funds managed by Altana Wealth filed a new breach-of-contract lawsuit against the Republic of Venezuela over unpaid bonds, this time adding additional counts related to both bonds and oil-indexed payment obligations. In other news regarding individual lawsuits, Nova Austral was served with a lawsuit filed by Administradora de Fondos Moneda containing accusations of alleged fraud and seeking USD 300m. The filing is very similar to another suit, filed by investor Fratelli Investments in July.

Source: Debtwire’s Restructuring Database

August also saw Brazilian auto parts maker Sifco SA request the reopening of its Chapter 15 recognition case to seek an order for turnover of funds and approving the redemption of bonds. Mexican media group TV Azteca agreed to initiate a mediation proceeding with a group of bondholders in order to reach an agreement concerning the involuntary Chapter 11 case filed by the creditors against the company.

Source: Debtwire’s Restructuring Database

Offshore Drilling Holding subsidiary LaForta Gestao e Investimentos was authorized to dismiss its Chapter 11 case and to make the distribution to creditors of proceeds from the sale of the La Muralla IV drilling rig. In addition, Grupo FAMSA secured bondholders acquired the control of the Mexican retailer’s US assets.

Other court developments of interest last month involving Latin American distressed companies include (i) Americanas and lenders Banco Safra and Banco Bradesco fighting over the inclusion of certain guarantee-related claims held by the banks in the company’s in-court restructuring process; (ii) Cimento Tupi unsecured creditors asking the court to replace the judicial manager due to alleged lack of impartiality; and (iii) Oi asking the court to extend the stay period of its bankruptcy protection.

The months ahead


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Camposol 2Q23 Credit Report – Improved present and uncertain future

Camposol’s 2Q23 conference call can be divided into two different segments: present and future. For the present, there was plenty of good news. LTM 2Q23 EBITDA was USD 72m, up from USD 65m during LTM 1Q23 as results for 2Q23 were better than 2Q22 (which was not very high to begin with) (See Figure 1). Additionally, the Peruvian agriculture producer was able to convert USD 30m in short-term debt into medium-term debt, as a sale-leaseback agreement, following the USD 48m already converted earlier in 1H23.

Although it is true that converting short-term debt into medium-term debt doesn’t mean the company will delever, it does allow for some more breathing room. Furthermore, the company mentioned it has USD 115m in uncommitted credit lines. Neither the USD 153m in working capital credit lines (USD 183m reported as of June 2023 minus the USD 30m mentioned above) nor the USD 115m in potential new credit lines have any sort of collateral attached. The USD 80m in sale-leasebacks of course has assets attached to it (See Figures 2 – 3).

The future remains uncertain, but the management aimed to calm investors, who tried to obtain specific guidance on revenues and EBITDA for the blueberry campaign. Most of the analysts that asked questions focused on the YoY comparison for 2H23. Incorrectly, in our view, the management addressed those questions as they were formulated without stressing the fact that if the production curve shifts further into the future (meaning, gets delayed), comparing 3Q22 vs 3Q23, 4Q22 vs 4Q23 or 2H22 vs 2H23 is unfair because all numbers will prove negative. As per the company’s comments, besides a drop in volume, the curve will shift, meaning many thousand tons of fruit will be sold during 1Q24.

In our opinion, the answer should have compared the entire 2023-2024 campaign of blueberries versus the 2022-2023 campaign. Although volumes will certainly be lower, it seems (again, as per the company’s comments) that when comparing the whole campaign, the decline will be smaller and higher prices can somehow offset part of the lower volumes.

Management mentioned that some varieties of blueberries (ie Biloxi) are more resistant to higher temperatures than others (ie Ventura), and that most of Camposol’s production comes from the Biloxi variety. This implies, as we understand it, that many competitors have a higher proportion of their production in the more-affected Ventura variety. We’ll have to wait and see what happens. It would be nice if volumes for Camposol dropped less than for others, and higher prices could compensate for the lower volumes.

The Peruvian company also mentioned that it saw a very small (immaterial, in their words) effect on avocados.

Financial highlights for 2Q23

Although revenues were USD 36m, down 25% YoY, adj. EBITDA was USD 6m, up from USD -2m in the same period of last year. The main drivers were a contribution from blueberries (USD 1m gross profit in 2Q23 vs USD -4m in 2Q22) and a USD 1m difference in avocados. As has been the case in the last few years, the harvesting of avocados and the sale are very different during 2Q (a lot of product, very little sales) (See Figure 4).

Compared to 2Q22, avocado prices for avocados were higher (USD 2.09/kg vs USD 2.03/kg) and costs were lower (USD 1.76/kg vs USD 1.98/kg). If sustained for 3Q23, this will improve the profitability from the meager performance in 2022.

Free cash flow was USD -12m, better than USD -28m in 2Q22, on higher EBITDA and improved working capital management. On this note, days of receivables were just nine, the lowest recorded since at least 4Q19, which means that this probably can’t be sustained, and the company will have incremental working capital needs (See Table 1).

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Legal Analysis

Tunghsu bondholders show that to enforce in Hong Kong, you might first need a New York stopover

Tunghsu Group’s bondholders appear to have found the magic formula for enforcing the terms of New York law-governed bonds in Hong Kong – head to New York first.

Bond investors Zhang Rui Kang and Le Huan-Hsin have been attempting to enforce their rights ever since BVI-incorporated bond issuer Tunghsu Venus Holdings Limited and PRC-incorporated parent guarantor Tunghsu Group failed to redeem their USD 342m (outstanding) 7% guaranteed bonds due Jun-2020 in suspicious circumstances.

First they wound-up Tunghsu Venus in the BVI. Then, they obtained a default judgment in New York against both Tunghsu Venus and Tunghsu Group for the outstanding principal and interest owed under the bond/guarantee. Finally, they commenced two sets of proceedings in Hong Kong – the first to recognize the New York judgement (so that it could be enforced against any assets in Hong Kong) and the second to sue Tunghsu Group and various directors for: (i) breach of the guarantee; and (ii) inducing or procuring the companies to breach their payment obligations under the notes by allowing Tunghsu to siphon off USD 6.4bn of cash prior to the notes maturing in breach of their fiduciary duties.

In late July, the Hong Kong proceedings took centre stage as Tunghsu Group attempted to set aside previous orders the bondholders had obtained allowing them to serve their claims on Tunghsu Group and the directors outside of Hong Kong. If the orders were set aside, the claims could not proceed.

The good news for the bondholders was that their judgment recognition claim survived the test. Deputy High Court Judge MK Liu readily accepted that bondholders stood to receive a legitimate benefit if the New York judgment was ultimately recognized (in that they could, for instance, use it to seek examination orders against the directors, or to seize any undisclosed assets which might at some point flow through Hong Kong) and granted leave.

But bondholders weren’t so lucky in respect of their second set of claims. In short, Judge Liu concluded that their claims against Tunghsu Group and the directors failed to show a serious issue to be tried. In respect of the guarantee claim, that was because — just like in the controversial Leading Holdings decision released only days earlier — the court concluded that the bondholders – as beneficial holders of the bonds — had no rights under the bond indenture to sue for payment. Only the registered “Holder” of the notes could do so because Tunghsu Group had only guaranteed Tunghsu Venus’ obligations to Holders.

If that sounds like an odd conclusion, there’s good reason. In finding that bondholders had no rights against the guarantor, the Hong Kong court essentially ignored or discounted the fact that a New York court had already concluded that Tunghsu Group was liable to bondholders Zhang and Le under the very same guarantee set out in the very same New York law-governed indenture.

On the face of it, that’s a crazy result. But it does help to delineate a clear enforcement path for holders of New York law-governed bonds in Hong Kong. Head straight to the Hong Kong courts and you’ll find out you have no rights against an issuer or guarantor. But make a detour to the New York courts first and you’ll most likely be able to then waive your New York judgment in front of the Hong Kong court with glee.

A messy default 

Tunghsu Venus’ USD 342m (outstanding) 7% guaranteed bonds due June 2020 were issued in 2017 under a New York law-governed indenture and guaranteed by its PRC-incorporated parent, Tunghsu Group Co. As is customary, a single global note was executed and registered in the name of a nominee of the common depositary for Euroclear and Clearstream – initially Citivic Nominees Limited. The trustee of the bonds was Hong Kong-incorporated Citicorp International Limited.

Shortly before the bonds were due to mature, the Shijiazhuang, Hebei-incorporated conglomerate announced that it had insufficient resources to repay them. Then, on 30 June 2020, Tunghsu’s 2019 financial statements were issued with a qualified audit opinion (along with those of its Shanghai-listed controlled-affiliate Tunghsu Optoelectronic) due to their inability to verify 97% of the group’s (apparent) liquid assets thanks to unexplained advance payments, accounts receivables and bad debt provisions.

Not surprisingly, that caused bondholders to act:

  1. first, two investors — Zhang Rui Kang and Le Huan-Hsin — took steps in the BVI to liquidate Tunghsu Venus so that the flow of the bond proceeds within the group could be examined. Statutory demands were issued on 16 June and 14 July 2020 and a winding-up petition presented on 4 December 2020 (after Tunghsu Venus unsuccessfully challenged the statutory demands). The BVI court would up Tunghsu Venus in February 2021 (apparently without any concern as to whether the bondholders had standing to petition as a contingent creditor);
  2. next, Zhang and Le sued Tunghsu Venus and Tunghsu Group in New York, seeking damages for their failure to pay outstanding principal and interest under the bonds and guarantee. The New York court granted both bondholders a default judgment on 1 September 2021 (NY Judgment);[i] and
  3. finally, Zhang and Le commenced two sets of proceedings in Hong Kong. The first sought recognition of their New York judgment (so that it could be enforced in Hong Kong against any assets of Tunghsu Venus and Tunghsu Group in the jurisdiction. The second was filed by Zhang, Le and four other (related) bondholders — Creative Hub LimitedAlliance Jumbo LimitedLe Yi-Ting and Peak Equity Group. In those proceedings: (i) the four ‘new’ bondholders sought damages from Tunghsu Group for breaching its obligations under the guarantee (Zhang and Le not needing such a judgment because they had already obtained one from the New York Court); and (ii) each of the bondholders sought damages from Tunghsu and various directors for inducing or procuring Tunghsu to breach its payment obligations under the notes and guarantee by allowing the company to siphon off USD 6.4bn in funds prior to the bonds maturing in breach of their directors’ duties.

As those enforcement proceedings rumbled on, Tunghsu engaged Admiralty Harbour Capital and announced a restructuring proposal (in December 2020) which called for 15% of all outstanding principal to be repaid upfront, with 79% to be amortized over three years (with a personal guarantee from 49.06%-shareholder Chairman Li Zhaoting) and the remaining 6% principal and all unpaid accrued interest to be written off. The restructuring collapsed, however, after a Kirkland & Ellis-advised ad-hoc group (which included Zhang and Le) remained unconvinced of the group’s ability to meet the proposed amortization payments and continued to press for better terms.

Suing PRC residents in HK

With no feasible restructuring on the horizon, bondholders had little option but to push forward with their enforcement efforts. To do so in Hong Kong, they needed to serve their two sets of Hong  Kong proceedings on Tunghsu Group and the directors where they resided (in the PRC), something which required leave of the court.

The bondholders obtained leave from a Master of the High Court in 2021. But Tunghsu then filed two applications to set aside the Master’s orders. It was those applications which were heard by Deputy High Court Judge MK Liu on 21 July.

Bondholders may seek recognition of a New York judgment 

First up, Deputy Judge Liu considered whether Zhang and Le should be granted leave to serve their writ seeking recognition of their New York judgment on Tunghsu in the PRC.

To be granted leave, Zhang and Le needed to demonstrate that there was a real prospect of them receiving a legitimate benefit if leave was granted and the writ was served on Tunghsu. That benefit need not be monetary or tangible in nature; it could be indirect or prospective, provided that it served some useful purpose.

Tunghsu argued that no such benefit arose because the bondholders would never be able to enforce the judgment in Hong Kong – Tunghsu had no Hong Kong assets and none of its subsidiaries had any real business operations or assets in Hong Kong. But Deputy Judge Liu agreed with the bondholders that: (i) Tunghsu might have assets in Hong Kong at some juncture in the future (after all, the group had raised capital in Hong Kong in the past and continued to be served by advisers in the jurisdiction); and (ii) enforcing the judgment could allow further investigations to take place with a view to locating assets, including by seeking to examine the directors. Those two factors, together with the inference to be drawn from the fact that Tunghsu had considered it necessary to spend substantial time and money resisting enforcement of the New York judgment in Hong Kong, were sufficient to show that a benefit arose.

Accordingly, the judge dismissed Tunghsu’s setting-aside application and left the bondholders free to serve the proceedings in the PRC.

But they can’t sue a bond guarantor in Hong Kong

Next, Deputy Judge Liu considered whether to grant leave for the second set of Hong Kong proceedings commenced by the bondholders to be served on Tunghsu and the directors in the PRC. That’s when things got more controversial.

In order for leave to be granted, bondholders needed to demonstrate a serious issue to be tried. That’s because courts will be reluctant to force foreign parties to litigate in Hong Kong if the case argued against them is hopeless or lacks reality. Unfortunately for the bondholders, that’s exactly how the court felt about both their guarantee claim against Tunghsu Group and their claims against the directors.

Critically, Deputy Judge Liu concluded that the bondholders had no standing to enforce the guarantee. Why? Because under the terms of Tunghsu’s indenture:

  1. Tunghsu Group guaranteed the obligations of Tunghsu Venus to each “Holder of a Note… and to the Trustee and its successors and assigns”; and
  2. for so long as the notes were held in global form:
    1. the common depositary (or its nominee) would be considered as the sole Holder and owner of the note, and parties holding book-entry interests in the notes (i.e., bondholders) either directly (as clearing system participants) or indirectly through participants would not be considered Holders;
    2. to exercise any rights of Holders under the indentures, indirect holders of book-entry interests would need to rely on the procedures of their participants, and those participants would in turn need to rely on the operating procedures of Euroclear and Clearstream.

To Deputy Judge Liu, those provisions made it clear that bondholders were not Holders and therefore could not could not pursue Tunghsu Group under the guarantee. Only if definitive notes were issued in accordance with the terms of the indenture would they become a Holder, but that hadn’t occurred. Beyond that scenario, it made no sense for beneficial holders of book entry interests to have an unrestricted right to sue the guarantor when even the rights of Holders to sue were limited under the standard no action clause set out in the indenture.

If that reasoning sounds familiar, it’s because it largely mirrors that of: (i) Justice Doyle of the Grand Court of the Cayman Islands in his April Shinsun Holdings decision; and (ii) Deputy Judge Suen of the Hong Kong High Court in the Leading Holdings decision, released only days before the Tunghsu decision. In those cases, the courts concluded (inter alia) that bondholders had no standing to present a winding-up petition either under the terms of the indenture (because only a Holder had such rights) or as a contingent creditor (because there was no pre-existing relationship between the beneficial holders and the issuer upon which a potential liability was based).

Interestingly though, Deputy Judge Liu didn’t seem to consider one of the key issues in Shinsun Holdings, Leading Holdings and the subsequent BVI decision in Haimen Zhongnan Investment Development, namely whether the Euroclear’s operating procedures – which contain a global authorization permitting bondholders to act as agent of the Holder under the terms of any bond indenture – had been incorporated by reference into the indenture (under New York law). That was a point the three other courts had disagreed on — the BVI court accepted that under New York law the Euroclear procedures had been incorporated, allowing bondholders to step into the shoes of a Holder and sue for payment; the Cayman and Hong Kong courts concluded they hadn’t, leaving bondholders reliant on the common depositary’s nominee taking such action for them, but without any ability to instruct it to do so.

Who cares what a New York court said about this New York indenture, this is Hong Kong

But the real surprise for bondholders was that the Hong Kong court refused to accept they could sue Tunghsu Group to enforce the guarantee contained in the indenture despite the New York court having already ruled that two of the bondholders could do so.

That’s right, when interpreting what rights a bondholder had under a New York law-governed indenture, Deputy Judge Liu was happy to ignore or discount the findings of the New York court that Tunghsu Group was liable to bondholders Zhang and Le under the very same indenture. The judge even dismissed the bondholders’ argument that expert evidence on New York law should be adduced, finding that the approaches of the New York court and Hong Kong court to interpreting the indenture would be essentially the same. Apparently not!

In fairness, the New York judgment was a default judgment, issued after Tunghsu chose not to defend the proceedings. In turn, that meant the New York court was not called upon to consider detailed argument as to whether or not the bondholders had standing to sue Tunghsu Group. But presumably the court still needed to be confident that the bondholders had standing to sue and that their claim had merit. For some reason, the Hong Kong court didn’t care.

Your other claims are also flawed

Finally, Deputy Judge Liu took aim at the bondholders’ claim against the directors, once again concluding that there was no serious issue to be tried.

In short, the judge concluded the claims were a long shot. If they had been raised under Hong Kong law, they would have fallen foul of the reflective loss principle which prevents shareholders and creditors recovering loss which was actually suffered by a company. In this case, the bondholders had essentially argued that the directors had wrongfully misappropriated Tunghsu’s assets or recklessly allowed Tunghsu to make the outbound cash flow in breach of their fiduciary duties, which left the company unable to pay the amounts due under the notes. That meant the loss suffered by the bondholders really only reflected the loss suffered by Tunghsu because of the alleged wrongful acts of the directors. And while it was PRC law, not Hong Kong law, which would determine whether the directors had in fact caused loss, the bondholders could not demonstrate that the reflective loss principle wouldn’t also defeat their claim under PRC law.

And just to rub salt into the wounds a little more, the judge also concluded that it was unclear whether Hong Kong was the most appropriate forum in which to hear the bondholders’ claims, given that they involved issues of PRC law (such as whether the reflective loss principle applied), all directors were ordinarily resident in the PRC, and the alleged wrongful acts of the directors (if true) were committed in the PRC. For that reason alone, the court would have refused to grant leave to serve the proceedings outside of Hong Kong.

To enforce in Hong Kong, bondholders must act in New York first

For Tunghsu’s bondholders, the path to enforcing their rights is now clear – push forward with having their New York judgment recognized in Hong Kong and then seek to enforce it against any assets in Hong Kong and/or by serving a statutory demand and winding-up petition against Tunghsu Group itself. Each step of that process will no doubt be opposed by Tunghsu, but may exert enough pressure to extract a better restructuring offer.

More broadly, Deputy Judge Liu’s decision once again highlights that bondholders will face a struggle to enforce their New York law-governed bonds in Hong Kong other than through their trustee. But it also illustrates the way around that quagmire. First, approach the New York courts and obtain a default judgment. Then, bypass any question as to whether or not you have standing to commence proceedings against an issuer or guarantor in Hong Kong by simply seeking recognition of your New York judgment. The path might be a little longer, but it seems that giving the Hong Kong courts less to think about is the best way forward.


[i] Another bondholder, Asia-focused hedge fund BFAM Asian Opportunities Master Fund LP, took a similar approach to enforce its rights in respect of the USD 100m of notes it held. On 24 July 2020, it commenced proceedings in New York against the issuer and guarantor for the principal and interest outstanding. Then, on 23 September 2020, it filed a motion seeking default judgment, which the court granted on 17 December 2020. Judgment was then entered for the sum due and owing on 16 February 2021.


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Data Insight

Taking stock: de-risking remains key focus for loan issuers and investors alike

August is a good month to reflect on issuance over the course of the past year, ahead of the September push through to the holiday season and the advent of the new year. While syndicated leveraged loan and high-yield (HY) bond markets have endured a challenging time during the past eight months, sentiment is far from rock-bottom thanks to softening expectations of a US recession, leveraged yields stabilising, and defaults merely trickling upward. There may yet be further bumps in the road; however, the market appears ready to spring back into action as and when the shackles are loosened.

The subdued performance in the loan market has been supported by amend-and-extend (A&E) activity, as issuers look to shore up balance sheets ahead of the most telegraphed downturn in recent history. Refinancing has taken center stage in 2023, propping up issuance at over 80% of the total. Not pulling its weight this year is new-money institutional activity, which has seen an eye-watering 70% year-on-year (YoY) collapse on the back of a continuing lack of supply from M&A auction processes.

The ongoing reliance on refinancing activity via A&E transactions suggests issuers are in a holding pattern, continuing to push out debt that is due to mature in the near term, while future macroeconomic predictions remain unreliable.

Within the debt that has been raised, 2023 has seen a shift towards higher-rated firms, with 39% of leveraged loans rated BB or above this year, up from 32% in 2022 and 30% in 2021, indicating a market actively pursuing the safety of higher-rated credits. This adjustment, while notable, falls within historical patterns and represents a calculated adaptation rather than a drastic departure from established norms.

In line with this move, total and net leverage on new issuance has continued to decline, as average EBITDA rises in the aftermath of the pandemic and debts are simply rolled over, with new-money issues few and far between. Gross leverage in July fell to 3.9x, well down from 5.5x at end-2020.

Also in July, defaults hit 3% for leveraged loans, according to Fitch Ratings, having increased steadily from 0.4% in February 2022. Healthcare and pharmaceutical firms continue to lead the wave of defaults, with almost USD 14bn worth of loans within the past 12 months.

In the bond market, issuers are also preparing for harsher times ahead, electing to use secured structures over unsecured facilities. Secured notes had risen to 50% of senior issuance last quarter from 25% in 1Q21, providing further evidence of issuers’ emphasis on risk mitigation.

One positive takeaway is the relative stability of yields in both the loan and bond markets in recent months, rising 0.8% and 0.5%, respectively, over the course of the year. With hatches seemingly fully battened down, this stability could represent a calm before a storm or a continued softening of the once-likely cataclysm.

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News Analysis

Collapse of China property sector devastates APAC DCM, rockets restructuring appointments – APAC Restructuring Insights Report

While the issuance of USD high-yield bonds has been lethargic globally since early 2022 amid rising rates, the decline in APAC (ex-Japan) has been very much caused locally, and very much by one specific sector: mainland China property. Conversely, that has been a boon for restructuring advisory work.

As shown in the table below – powered by Debtwire’s Restructuring and Primary Issuance databases – new HY USD issuance volume in the region collapsed in late-2021, just as large Chinese developers began missing payments on their offshore bonds. The sector’s impact on volume has been outsized largely because it has long been the main provider of APAC USD HY bonds.


Surveying the damage

The wave of offshore bond defaults, which formed in mid-2021, crested in the middle of 2022 and has yet to recede. So far, 53 Chinese property companies have been subsumed in the surge, and behemoth homebuilder Country Garden Holdings will be the 54th if it doesn’t cure two missed 7 August bond coupons by the end of a 30-day grace period.

This has dried up demand for Chinese property bonds. Debtwire data shows that non-investment grade Chinese property companies currently have 397 offshore public bonds outstanding with aggregate principal value of USD 154.9bn. They have so far lost more than USD 135.5bn of their market value mostly in the past two years. That is based on 25 August prices from IHS Markit, which covers 367 (includes three CNH and five HKD-denominated tranches) of these tranches with USD 152.9bn outstanding, and cumulatively marks them at a total value of only USD 17.3bn – or 11.3% of the principal outstanding.


Dollar bond issuance dries up

The unprecedented distress in the Chinese property sector has eliminated the key pillar of the USD bond market in APAC (see chart above). For the six months ended June 2023, only USD 3.5bn high yield bonds were issued in APAC, of which one tranche was from a China property developer – Seazen Group‘s May issuance of a USD 100m due-2024 bond. Overall, the region’s USD high yield issuance in 2023 is on pace to be even lower than a disastrous 2022, which had the lowest annual issuance volume in a decade.

The issuance of APAC (ex-Japan) USD HY bonds had increased significantly, if bumpily, throughout the 2010s, and peaked in 2019, when more than USD 120bn was priced. The growth from 2017 was powered predominantly by the Chinese property sector; it contributed USD 69bn in 2019 or 55% of the total APAC figure, up from USD 7bn/19% in 2016.


Prelude to the tempest

The sector’s offshore bond issuance spree was part of its debt-raising binge that eventually prompted the central government to force developers to deleverage. It was this policy push – not the underlying property market – that triggered the tsunami of defaults.

Indeed, after a sharp but short slump during the early days of COVID-19, contracted sales among high-yield bond-issuing Chinese property developers staged a furious rally.

Data in Debtwire’s monthly China Property Pre-sales Tracker shows that, in 2020, there was a 10.9% YoY increase in aggregate contracted sales by the 53 high yield bond issuing developers that reported comparative figures for that year. Then the 52 developers with comparative data for 1H21 reported an aggregate 34.6% YoY increase for that half. Contracted sales only began to fall sharply in 2H21 and have continued to plummet since then.


Restructuring advisor opportunities

While the carnage in the Chinese property sector has left homes unfinished, and DCM bankers with little to do, it’s been a boon for restructuring professionals in the region. As the chart below shows, Chinese property companies have accounted for the vast majority of new restructurings in APAC since 3Q21, as measured by debt amount.

While the total number of new mandates for restructurings involving Chinese property companies has come down in the last few quarters, the sector remains a bountiful source of advisory fees – and headaches. As the chart below shows, 22 Chinese property companies that are currently engaged in a workout process appointed advisors more than one year ago, while another eight are beyond the six-month mark.


Completed Restructurings

Since the current property downturn began in July 2021, 31 developers have completed 39 restructuring processes covering 101 offshore-bond tranches with USD 32.2bn principal (see table below).


Biggest Winners

Four financial advisors – Haitong International, Alvarez & Marsal, Admiralty Harbour and Guotai Junan International – have each received more than 10 restructuring advisory mandates by Chinese property companies or their stakeholders since the start of 2021.

Among international law firms, Sidley Austin leads the pack, with 31 appointments, followed by Linklaters, with 21. Both parlayed their dominance in advising on HY issuance in the region.


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