A subsidiary of Aggregate Holdings SA today (1 November) secured the High Court’s green light to convene its creditors to three meetings in which they will vote on a restructuring plan proposed under Part 26A of the Companies Act 2006.
Through the plan, the German real estate group seeks to return to solvency by slashing its existing EUR 1bn-plus debt pile by around EUR 250m as well as extending the maturities of its post-workout liabilities, while also raising EUR 190m of new financing.
While granting the sought convening order today, Mr Justice Miles noted in his oral ex tempore judgment that he was somewhat concerned by the rather short notice given to the company’s creditors ahead of the convening hearing; an issue that has been observed in a number of other recent cases by reliance on the alleged urgency of the matters, Miles J pointed out.
The judge also noted that a number of the company’s creditors have raised issues regarding the plan, further accentuating the need for a sufficient notice period between the promulgation of the plan and the convening hearing.
“I have concerns about this approach,” the judge said. “It doesn’t take much looking at the evidence to see that this is a problem that’s been present for months, if not years. It has been staring the company and the senior creditors in the face.”
In fact, at the start of the hearing, Miles J wondered whether the convening hearing shouldn’t be adjourned, possibly by two weeks, in order to give the plan creditors further time to consider their positions. He, however, ended up being “just about persuaded” to proceed with the hearing after the plan company’s counsel pointed out that none of the dissenting creditors had sought an adjournment of today’s session, rather reserving their rights possibly for the sanction hearing.
“I want to emphasise that I’m not particularly impressed by the evidence about the reasons why the plan has not been promulgated until now. It has been staring at the senior creditors and the plan company for many months that there is a huge liquidity crisis and a repayment date at the end of November,” he said in his oral judgment.
The judge, however, went on to find that “the crystallised issues” which would have been raised at an adjourned convening hearing would be “very unlikely” to stop the case from moving forward to the vote and sanction stages. The exact date of the sanction hearing is not fixed yet, but it will likely be held in late January or early February next year.
In today’s hearing, the plan company was represented by Tom Smith KC, Ryan Perkins and Edoardo Lupi (all three from South Square). They were instructed by DLA Piper.
A senior creditors committee was represented by South Square’s Georgina Peters.
The concerns and objections referred to at the hearing originated from three sets of creditors; a first set came from a Tier 2 Debt holder advised by Macfarlanes who, among other things, complained about the length of notice for the hearing as well as the court’s jurisdiction to hear the matter; a second set of complaints came from a dissenting holder of the Senior Debt advised by Hogan Lovell; and a third set of grievances were raised by a holder of the Junior Debt with a 26% stake in that class advised by Freshfields.
None of the three creditor groups were represented today, and sought an adjournment of the hearing, Miles J noted.
Corporate and debt structures
The plan has been proposed Project Lietzenburger Straße Holdco S.À.R.L., a Luxembourg-incorporated entity within the Aggregate group which recently moved its centre of main interests (COMI) to England for the purposes of promulgating the plan.
The plan company is an affiliate of a Luxembourg-incorporated company called Project Lietzenburger Straße PropCo S.À.R.L. (PropCo). 89.9% of the share capital of PropCo is ultimately owned by Aggregate Holdings SA (Aggregate). Aggregate’s 89.9% equity interest in PropCo is indirectly held through two Luxembourg-incorporated companies, namely the plan company (which holds 50% of PropCo’s share capital) and Ionview Holdings S.À.R.L. (which holds 39.9% of PropCo’s shares).
The plan Company is a direct wholly-owned subsidiary of Ionview. In turn, Ionview is a direct wholly-owned subsidiary of Aggregate Holdings 4 S.À.R.L. (AH4), and AH4 is an indirect wholly-owned subsidiary of Aggregate. As such, the plan company is one of the intermediate holding companies within the group.
The group owns a development site on the Ku’Damm, a well-known shopping boulevard in Berlin (the Development). The Development is the key asset of the group and is one of the largest uncompleted commercial real estate projects in Germany.
The Development has, however, suffered from substantial cost overruns. Construction was substantially halted in January 2023 and came to a complete stop in May 2023. In addition, the group’s cash is trapped in a blocked account (save for certain emergency liquidity facilities that the group is using to pay professional fees and to keep the Development safe).
The group’s financial indebtedness comprises three tranches of secured debt, all of which will be affected by the plan. These facilities, in their respective order of priority, are: (i) EUR 775m of Senior Debt; (ii) EUR 150m of Tier 2 Debt; and (iii) EUR 95m of Junior Debt. All three facilities are governed by German law. All three tranches of Aggregate’s secured debt will fall due on 28 November 2023, and the group has “nowhere near enough cash” to repay the sums due, the court was told today.
Moreover, members of the Senior Creditors’ Committee agreed in September 2023 to provide interim liquidity facilities amounting to circa EUR 32m on unsecured basis. Of this amount, circa EUR 15m has already been drawn. The interim facility will fall due on the earlier of the “Restructuring Effective Date” or four months from the date they were issued. If the restructuring plan fails, the interim facilities can be accelerated by the lenders.
Under the plan, the Tier 2 Debt and the Junior Debt will be entirely written off. This, the company’s lawyers explained, is due to the fact they are “wholly out of the money”. As for the Senior Debt, the maturity date will be extended to 28 November 2025, but the claims will be kept whole.
The plan also includes a new money element. All holders of the Senior Debt will be entitled (but not obliged) to participate in a new EUR 190m tranche of Super Senior Financing. The Senior Creditors’ entitlement to participate will be pro rata to their existing holdings of Senior Debt. The deadline for agreeing to participate in the new monies will be 1 December 2023. The new facility will rank above the Senior Debt.
The main purpose of the super senior debt is to keep the group afloat while the Development is being completed. Also, these funds will be partially used to repay the Interim Facilities as well as transaction costs that are not paid for by the Interim Facilities.
As part of the new money raise, there will be an elevation incentive for any senior creditors who agree to participate in the Super Senior Financing. The Senior Creditors who choose to chip in will be given an enhanced priority position in the post-restructuring waterfall. Yet, the plan also provides a mechanism to ensure that those Senior Creditors who do not participate will be “no worse off” than in the relevant alternative. As such, the Senior Debt will be restated into the following four tranches (in descending order of priority):
(a) The Elevated Senior Financing. This tranche will be allocated to those who participate in the Super Senior Financing. For every euro of new money provided under the Super Senior Financing or Interim Facilities, two euros of existing Senior Debt held by that creditor will be restated as fully-drawn commitments under the Elevated Senior Financing. The balance of Senior Debt held by such creditors will be restated as Tranche A Stub Senior Financing (see below).
(b) The NWO (No Worse Off) Senior Financing; this tranche will be allocated to Senior Creditors who do not participate in the Super Senior Financing. Each non-participating Senior Creditor will receive fully drawn commitments under the NWO Senior Financing in an amount equal to their expected recoveries in the relevant alternative. The balance of Senior Debt held by such creditors will be restated as Tranche B Stub Senior Financing.
(c) The Tranche A Stub Senior Financing; this tranche will be allocated to Senior Creditors who participate in the Super Senior Financing. It will represent the balance of the Senior Debt held by participating Senior Creditors in excess of the amount restated as Elevated Senior Financing.
(d) The Tranche B Stub Senior Financing; this tranche will be allocated to Senior Creditors who do not participate in the Super Senior Financing. It will represent the balance of the Senior Debt held by non-participating Senior Creditors in excess of the amount restated as NWO Senior Financing.
The Tier 2 Debt and the Junior Debt will be released in their entirety. Any claims held by the subordinated creditors against any of the group obligors which are guaranteed by the plan company will also be released.
Relevant alternative
The company’s evidence on the relevant alternative to the plan is based by an independent expert report produced by FTI. According to the FTI report, the group is currently heading towards an imminent and inevitable payment default on over EUR 1bn of secured debt, with insufficient liquid assets available to repay even a small part of that sum.
The Interim Facilities would also be accelerated upon the failure of the plan. Accordingly, upon the failure of the plan, it is likely that all of the obligors would enter into formal insolvency proceedings. For the plan Company, the insolvency proceedings would be opened in England (given the recent COMI shift). For the other Luxembourg-incorporated obligors, the insolvency proceedings would be opened in the duchy. For the Germany-incorporated obligors, the insolvency proceedings would be opened in Germany. This is the relevant alternative to the Plan.
The managers of companies incorporated in Luxembourg and Germany have strict duties to file for insolvency proceedings within a relatively short period of time after certain statutory insolvency thresholds are reached.
In the relevant alternative, the Development would be sold and the proceeds would be distributed in the order of priority. To determine the likely recoveries by each class of the plan creditors, the group has obtained a valuation of the Development from Knight Frank, according to which the current market value of the uncompleted Development is circa EUR 392m.
Miles J noted today that the realisations in the relevant alternative would be significantly less than EUR 392m, with a 25% discount a likely outcome.
On that basis, FTI calculated that in the relevant alternative the Senior Debt would make a recovery of 44.5%. The Tier 2 Debt and the Junior Debt would make zero recoveries.
In an insolvency scenario, it is also possible that the Senior Creditors will instruct the Security Trustee to enforce one or more of the share pledges. This would be likely to result in the transfer of the share capital of the relevant obligor(s) to a new Bidco entity owned by the Senior Creditors. In that event, the Tier 2 Debt and the Junior Debt would be released by the Security Trustee in the exercise of its powers under the Trust Agreement.
On the basis of the Knight Frank report, the Development’s value after completion will be around EUR 909m.
This would enable all of the Super Senior Financing to be repaid, and would also allow a much better recovery for the Senior Debt. The precise recovery for each Senior Creditor will depend on whether it chooses to participate in the Super Senior Financing, with a participating Senior Creditor expected to make recoveries of 89.3% while non-participating Senior Creditors’ returns are estimated at 50%. But even under the plan scenario, there will not be any recovery for the Tier 2 Debt or the Junior Debt.
