UPDATE 1: New World Development Tells Bondholders Loan Swap Proposal Could Expand to Unsecured Loans Due 2027 Onwards; PJT, Houlihan Lokey Pitch Bondholders

Tue Jan 28, 2025 03:52 AM ET: Management of Hong Kong-listed developer New World Development told some of its bondholders in one-on-one meetings held last Thursday, Jan. 23 through Monday, Jan. 27 that its current loan refinancing proposal is not final, and could potentially also target unsecured loans maturing in 2027 and onwards, subject to ongoing negotiations with bank lenders, according to two sources who attended the meetings.

As Octus reported on Jan. 22, New World has submitted a preliminary proposal to its bank lenders, offering a $15 billion collateral package as security to refinance $7.5 billion-equivalent unsecured loans maturing in 2025 and 2026.

New World management said in the recent meetings with bondholders that final terms on the loan refinancing plan will be decided after banks’ feedback. At the same time, the company noted that it has pressing needs to refinance loans due in the next two years, the two sources said.

New World reported having a total of HKD 92.94 billion ($11.93 billion) unsecured loans as of end-June 2024. The company has more than 40 bank lenders, and has presented the proposal to all of them, sources said, citing management.

The company’s principal banks, according to its 2024 annual report, are:

• Chinese banks Agricultural Bank of China, Bank of China Hong Kong, Bank of Communications, China Construction Bank Asia, China Merchants Bank, Industrial and Commercial Bank of China Asia and Shanghai Pudong Development Bank;
• Local Hong Kong lenders, HSBC, Bank of East Asia and Hang Seng Bank;
• International and regional banks, Credit Agricole Corporate & Investment Bank, DBS Bank, Mizuho Bank, MUFG Bank, Nanyang Commercial Bank, OCBC Bank, Sumitomo Mitsui Banking Corporation and Standard Chartered Bank.

When asked by bondholders how the company plans to deal with its public debt, management said it currently does not have a specific plan for the outstanding $3.4 billion-equivalent HKD and USD bonds and $4.5 billion perpetuals, and is evaluating options. The company expects to deal with such public debt after completing the loan refinancing exercise, the sources said, citing New World executives in the meetings.

Bondholders Organize

As New World’s plans for the loan swap emerged over the course of last week, financial advisors began circling bondholders, and both PJT Partners and Houlihan Lokey hosted calls towards the end of the week.

Following on from its call with USD bondholders on Jan. 23, PJT as financial advisor and Kirkland & Ellis as legal advisor are in communication with a group of bondholders holding over $500 million principal of New World’s bonds and perps.

Both PJT and Houlihan Lokey noted to bondholders on their separate calls that they stand to lose leverage in negotiations if they do not act while New World is still in talks with banks about its loan swap plans.

PJT cited cases of developers Country Garden and Sino-Ocean, where the financial advisor said that bank lenders gained security before an eventual default and ended up receiving better treatment in restructuring, as reported. The advisor further guided that the bank solution with credit enhancement proposed is a de-facto preference given to bank lenders at the expense of the bonds and the perps.

Houlihan noted in its presentation that the loan refinancing proposal would effectively prime the offshore notes and perps, and significantly weaken their position and/or recovery. The financial advisor, in its presentation, said that the actions likely constitute an example of “unfair and preferential treatment in favor of the offshore unsecured loans”, according to two sources who attended the call.

Houlihan’s presentation notes differing recovery rates for offshore unsecured debt assuming a 20% discount to book value of offshore completed IPs, according to the sources who attended the call.

In a scenario where pari-passu treatment is applied to all existing offshore unsecured loans and notes, the presentations estimates recovery at 64.2 cents on the dollar, but this recovery for the unsecureds falls to 20.7 cents on the dollar if the $7.4 billion of offshore unsecured loans are converted to secured facilities.

PJT and Houlihan declined to comment. New World and Kirkland & Ellis did not respond to requests for comment.

PJT Partners Calls for New World’s USD Bondholder Support to Send Letter to Co. Seeking Clarification on if Bank Loan Swap Triggers Bonds’ EOD

Editor’s Note: The following story was published in the evening on Jan. 23 and has been reissued during regular business hours to reach a wider audience.

PJT Partners on a Jan. 23 call with select New World Development USD bondholders requested their support to send the developer a letter seeking clarification on whether its bank loan swap plan breaches the bonds’ EOD provisions, said two holders who attended the call citing PJT.

The advisory firm said on the call that the event of default, or EOD, clause in certain New World’s bond indentures provided that readjustments or deferments of its obligations could constitute an EOD, and it is therefore worth asking if the company’s recent efforts to refinance its unsecured bank loans into longer term secured debt would constitute an EOD, the sources said citing PJT.

As Octus reported on Jan. 22, New World has submitted a preliminary proposal to its bank lenders, offering a $15 billion collateral package as security to refinance $7.5 billion-equivalent unsecured loans maturing in 2025 and 2026. New World in a Jan. 20 stock exchange announcement denied it is in any “holistic debt restructuring” process or discussion of its existing debt, including its bonds.

PJT also said that bondholders should push the company to release its loan negotiation advisors’ engagement letters – given that both FTI Consulting and Linklaters are well known insolvency practitioners – and either confirm or deny whether the appointments would constitute an EOD under its USD bonds’ indentures.

PJT said it has prepared the letter and is asking bondholders to lend support. Bondholders could lose leverage in negotiations if they don’t act while the company talks with banks, the advisory firm warned, citing cases of developers Country Garden and Sino-Ocean where bank lenders gained security before default and ended up receiving better treatment in restructuring.

PJT urged bondholders to organize and prepare for negotiations in case of any future EOD, sources said.

If bondholders agree to provide support for the letter, PJT said the next step is to engage a law firm to send out the letter on behalf of the holder group, sources said citing PJT.

PJT has worked as bondholder ad hoc groups’ financial advisor on several Chinese developer restructuring cases including R&F Properties, Logan Group, Country Garden and Sunac China.

PJT declined to comment.

Below is New World’s capital structure: