syncreon Group Holdings B.V. (the “Company” and together with its subsidiaries, “syncreon”) completed its landmark financial restructuring today. As has been widely reported, syncreon’s reorganization is perhaps the first-ever use of an English scheme to restructure debt issued by a U.S.-based global enterprise. This also appears to be the first time that CCAA recognition of an English scheme has been granted.
The Restructuring
syncreon is a leading global provider of specialised logistics and supply chain solutions to a broad and diverse customer base comprised of multinational companies primarily in the automotive and technology sectors.
The restructuring was implemented using English schemes of arrangement (the “Schemes”) of syncreon’s Dutch subsidiary syncreon Group BV (“syncreon BV”) and its English subsidiary, syncreon Automotive (UK) Ltd (“syncreon UK” and, together with syncreon BV, the “Scheme Companies”) paired with Chapter 15 recognition in the United States and CCAA recognition in Canada (each as described below).
syncreon’s holistic restructuring: (i) reduced syncreon’s approximately U.S.$1.1 billion of funded debt by approximately U.S.$690 million (allowing it to cut its costs of debt service by an estimated U.S.$51 million annually), (ii) repaid, in full, its existing ABL Facility, (iii) provided access to U.S.$125.5 million of additional liquidity from an ad hoc group of lenders, and (iv) established a new U.S.$135 million ABL facility. syncreon otherwise operated in the ordinary course throughout its restructuring process.
The Schemes
Before completing the Schemes, syncreon’s balance sheet, including syncreon BV, included approximately U.S.$1.1 billion of debt of comprising approximately U.S.$680 million owed under a senior secured credit facility (the “PCF”) granted in favour of syncreon BV (among others) and approximately U.S.$220 million in aggregate principal amount of 8.625% senior notes due 2021 (the “Notes”) issued by syncreon BV. syncreon UK was one of the guarantors under both the PCF and the Notes. syncreon’s debt also included approximately U.S.$75.5 million outstanding under liquidity loan facilities incurred by syncreon BV (the “Liquidity Facility”) and an asset-based lending facility (the “ABL Facility”) of approximately U.S.$80 million owed by one of syncreon’s Canadian subsidiaries, however the ABL Facility did not form a part of the Schemes.
The scheme process was particularly important to syncreon’s restructuring given that a substantial number of obligors on the schemed debt were organized in jurisdictions where Chapter 11 or alternative “U.S. based” options were simply not viable. Consequently, syncreon amended the governing law of the PCF and Notes to English law and utilizing English law to effectuate a global restructuring, with concurrent recognition in the United States and Canada.
Under the terms of the Schemes, the relevant obligors and guarantors (including non-Scheme Companies in the United States and Canada) in the syncreon group have been be released from their obligations under the PCF and the Notes will be cancelled. In exchange, all PCF Lenders received reinstated debt of U.S $225 million and 80% of equity in a newly-established Dutch holding company of syncreon’s operating group (“New Equity”). Noteholders received a 4.5% interest, and certain warrants, in the New Equity. Those PCF Lenders and Noteholders who entered into the restructuring support agreement (the “RSA”) with syncreon on or prior to the applicable deadlines also received, by way of a lock-up payment, a further 5.5% and 2.5% of the New Equity, respectively. The Schemes are anticipated to result in a return of between 59% and 72% to the PCF Lenders (58% and 69% for those PCF Lenders who were not a party to the RSA) and a return of between 7% and 10% to the Noteholders (4% and 6% for those Noteholders who were not a party to the RSA), calculated as a percentage of the total outstanding amount of the PCF Debt or Notes, as applicable.
PCF Lenders were also given the opportunity to participate in a portion of U.S. $125.5 million of new money, which was backstopped by a certain group of lenders under the Liquidity Facility (the “Backstop Parties”). The Backstop Parties received a payment of 5% of New Equity in consideration for backstopping the U.S. $125.5 million new money commitment. In addition, lenders under the Liquidity Facility received payments of 1.5% and 1% of New Equity in connection with the Liquidity Facility. These facilities and payments did not form a part of the Schemes.
On 10 September 2019, the English High Court in London sanctioned the Schemes. The sanction order followed overwhelming support at the Scheme meetings on 3 September, where, in aggregate: (i) 100% (in value of those present and voting) of the lenders under the PCF (the “PCF Lenders”) and; (ii) 97.73% (in value of those present and voting) of holders of the Notes (the “Noteholders”), respectively voted in favour of the Schemes (as applicable).
In her ex tempore sanction judgment on 10 September 2019, Mrs. Justice Falk considered, among other things, the lock-up payments to be made to certain PCF Lenders and Noteholders, the backstop payments to be made to the Backstop Parties and the payments to be made to lenders under the Liquidity Facility. Mrs. Justice Falk highlighted that it was important that “none of these additional amounts . . . represent adverse interests, in the sense of indicating that they would cause those creditors to support the restructuring in circumstances where they would not but for those incentives. The figures indicate that all Noteholders and PCF Lenders will be materially better off if these schemes are implemented, as compared to the position if they are not” (Syncreon Group BV, Re [2019] EWHC 2412 (Ch) (10 September 2019) at [22], the “Sanction Judgment”).
Cross-border Considerations
To establish sufficient connection with the English jurisdiction to allow the English High Court to sanction the Schemes, consent from both PCF Lenders and Noteholders was obtained to amend the governing law of the PCF and the Notes from New York to English law prior to launch of the Schemes and distribution of the practice statement letter. In the Sanction Judgment, Mrs. Justice Falk concluded that she was satisfied that the change of the PCF and the Notes to English law provides a sufficient connection with the jurisdiction and noted that it was also relevant that by entering into the RSA, over 95% of both classes of creditors had submitted to the jurisdiction of the English court (see paragraph [29] of the Sanction Judgment). Mrs. Justice Falk also highlighted that “use of the English jurisdiction and the scheme process is regarded as the only viable route for restructuring the scheme companies on a going concern basis” (see paragraph [29] of the Sanction Judgment).
Given syncreon’s global presence and guarantor jurisdictional coverage, judicial recognition of the Schemes in certain key jurisdictions was paramount in ensuring the effectiveness of the Schemes and releases contemplated thereby. Accordingly, recognition of the Schemes in the United States under Chapter 15 of the U.S. Bankruptcy Code (“Chapter 15”) by the U.S. Bankruptcy Court and in Canada under Part IV of the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) by the Ontario Superior Court of Justice were conditions to the Schemes being implemented (among others). The Honourable Brendan Shannon of the U.S. Bankruptcy Court, District of Delaware granted the Chapter 15 recognition order on 11 September 2019. The Honourable Mr. Justice Hainey of the Ontario Superior Court of Justice (Commercial List) granted CCAA recognition on 19 September 2019. As mentioned above, we understand that this appears to be the first time that CCAA recognition of an English scheme has been granted.
syncreon Advisers
Weil, Gotshal & Manges (“Weil”) acts for syncreon. The Weil team was led by Business Finance & Restructuring partners Matt Barr, Andrew Wilkinson, and Mark Lawford, and Banking and Finance partner Allison Liff. They were assisted by Business Finance & Restructuring associates Andriana Georgallas, Katherine Lewis and Michael Godbe in New York; Business Finance & Restructuring associates Alinta KemenyJenny Davidson, Chris Ballantyne, Rosalind Meehan, Fergus Kent and Amedea Kelly-Taglianini in London; and associate Matthias Eiden in Germany. The Weil partners were also supported by Banking and Finance associates Deana Toner, Justina Chen (not yet admitted in California), Theodore Batis, Evan Nichols, and Meghan Bell (not yet admitted in New York) in New York; Corporate associates Mariel Cruz and Alexander Miachika in New York and Candice Lambeth and Bonian Wu in London; Capital Markets partner Heather Emmel and associate Daniel Evans (not admitted in New York) in New York and associate Alexander Horstmann in London; Litigation associate Hayley Lund in London; Tax partners Marc Silberberg and Noah Beck and associates Lukas Kutilek and Craig Olshan in New York; and partner Oliver Walker and associates Nathan Langford and Eithne Bloice-Sanders in London.
Mark Arnold QC and Adam Goodison of South Square acted for the Scheme Companies.
Linc Rogers, Aryo Shalviri and Caitlin McIntyre of Blake, Cassels & Graydon were Canadian counsel to syncreon.
Vincent Vroom, Kim de Bruijn, Joris Dunki Jacobs and Freek Hilberdink of Loyens & Loeff N.V. were Dutch counsel to syncreon.