A group of investment funds is making a last-ditch court bid to block Adler Group SA’s restructuring, arguing that the proposed plan would leave them worse off than other creditors.
(Bloomberg) — A group of investment funds is making a last-ditch court bid to block Adler Group SA’s restructuring, arguing that the proposed plan would leave them worse off than other creditors.
The embattled German property firm is attempting to convince a London court to force through a restructuring plan for its debt pile of more than €6 billion ($6.5 billion) in a hearing that started on Monday. The proposal would see some bonds due next year have their maturities extended, interest payments temporarily suspended and allow for a new loan to be made to the company.
Holders of Adler debt including DWS Group, Carval Investors, Strategic Value Partners and Attestor Capital are challenging the plan, arguing that they would stand to lose out in the proposed restructuring. Lawyers for the real estate company argue that the only alternative to the restructuring would be an insolvency process that would see all of Adler’s lenders left worse off.
“The group’s financial difficulties have become acute” lawyers acting for Adler said in a document on Monday. “Absent the plan, the key members of the group will have no choice but to file for formal insolvency proceedings.”
The hearing is the culmination of years of difficulties for Adler, with the firm damaged by a short-seller report, a slowdown in German real estate transactions and rising rates making refinancing harder. Time is running out for a solution to be found, with the firm’s lawyers claiming that it will be unable to repay a loan due at the end of this month without the plan being approved. The firm’s share price has fallen nearly 97% since the end of 2020.
READ MORE: Inside Adler’s Fight for Survival After Its 97% Stock Plunge
A restructuring proposal in Germany was accepted by a majority of bondholders, but rejected by the owners of more than a quarter of Adler’s longest dated notes. For the plan to be enacted, Adler needed the support of more than 75% of each class of bondholder.
After the failure of the German restructuring plan, Adler transferred the liabilities of its holding company to a UK firm and is hoping that England’s high court will help it force through an agreement. Up until a few years ago this wouldn’t have been possible, but a law introduced in 2020 allows a judge to force through a plan in the face of creditor opposition. This process, referred to as a cram down, has been used to override the concerns of unhappy lenders in the restructuring of companies like Virgin Active.
Cram Down
Though creditors have been crammed down in the past, none of the cases have been as large as Adler’s.
Lawyers for the dissenting bondholders argue that the longer the maturities of the bond, the less likely they are to benefit from the restructuring. Adler has already started selling assets to pay back its debts, and the fear is that by the time the 2029 bond comes due, there might be nothing left for those holders.
Later-dated noteholders are effectively “advancing credit to the group in order to facilitate the repayment of the earlier ranking” debt, lawyers for the dissenting bondholders said in their skeleton arguments.
“There is unfair and egregious treatment” of the holders of 2029 bonds, they said. “There is no proper justification for this treatment.”
The objecting group also argue that additional security granted to holders of notes due in 2024 treats them unfairly. The firm is pursuing separate legal proceedings in Frankfurt, contesting the validity of Adler moving its liabilities from Germany to the UK.
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