Solid Energy defends its debt restructure

The Bank of Tokyo-Mitsubishi UFJ (BTMU) doesn’t want Solid Energy shares of “little to no value” in a restructuring deal the bank says shouldn’t be allowed under part 14 of the Companies Act.

During BTMU’s opening submission at the High Court at Auckland today, Queen’s counsel James "Jim" Farmer told Chief High Court judge Helen Winkelmann there are alternatives to writing off part of the state-owned company’s $80 million debt in exchange for preference shares of “little to no value”.

The deal, reached under part 14 of the Companies Act, calls for the banks, including BTMU, to retire a portion of Solid Energy’s debt in exchange for equity in the company. Collectively, Solid Energy would transform $75 million of its $400 million in debt into redeemable preference shares.

NBR ONLINE understands BTMU would have to write off $16.3 million of its $80 million loan under the deal, which was agreed on by the Crown, Solid Energy and its other creditors last month.

Other lenders include ANZ, Bank of New Zealand, Commonwealth Bank of Australia’s New Zealand branch, Westpac New Zealand and TSB Bank.

Part 14 of the act outlines compromises between creditors and debtors where part of the debt may be cancelled, a company’s constitution may be altered which affects the likelihood of a company repaying the debt, or the rights of the creditor or terms of the debt are modified.

BTMU claims this portion of the act wasn’t intended to make a creditor an equity holder, particularly when Solid Energy has a cash flow problem, not a problem with its balance sheet insolvency. Mr Farmer says recent documents show a positive equity of $91 million for the year-end June 2013.

“The medium- to long-term future is being protected by part 14, which was not designed for this use,” Mr Farmer says in his opening submission.

If the Japanese bank wins, it says it will seek to reinstate a standstill agreement until another solution can be worked out. In March this year, the banks agreed on a standstill agreement but it expired September 30.

Last month Finance Minister Bill English warned that if the Japanese bank was successful in blocking the restructure, Solid Energy could go into liquidation and the bank risks collecting any of the $80 million owed.

In his opening submission, Mr Farmer says with positive debt equity, there is no reason the company has to go into liquidation as the finance minister has suggested.

The bank claims it has been reasonable in providing alternative solutions. Prior to court proceedings, BTMU was willing to defer repayment, lower the interest rate and reset the loan covenants, Mr Farmer told Chief Justice Winkelmann.

Some of the documents filed in the civil proceeding include commercially sensitive information, such as forward-looking statements about the future of Solid Energy, and are suppressed to the media.

Also representing the bank with Mr Farmer are Queen’s counsel Matthew Dunning and Michael Drumm, a senior associate with Mayne Wetherell.

Queen’s counsel Alan Galbraith is representing the defendants, alongside Queen’s counsel Robert Stewart and lawyers with Chapman Tripp.

sflores@nbr.co.nz