A restructuring plan to prevent the collapse of German property giant Adler Real Estate has been approved by London’s High Court, despite opposition from some bondholders.
Today’s decision by Mr Justice Leech followed a hearing last week during which lawyers for Adler’s English subsidiary said the group was likely to enter insolvency proceedings at the end of April unless the restructuring plan was approved.
The English subsidiary AGPS BondCo has said it is unable to pay a €500m (£440m) debt due later this month. Meanwhile, Adler Group is struggling with debts of around €6.1bn amid a liquidity crisis caused by the downturn in the German property market, the Covid-19 pandemic, and inflation in energy and construction costs as a result of Russia’s invasion of Ukraine.
The restructuring plan would allow the landlord to borrow €938m of new funding and would see the terms of unsecured notes due to mature between 2024 and 2029 amended.
A group of creditors with notes due to mature in 2029 opposed the plan, arguing that they would be better off if Adler Group were formally liquidated.
Those investors include DWS Investment GmbH and Strategic Value Partners. An application for permission to appeal today’s court decision is expected to follow.
Karl Clowry, restructuring partner at Addleshaw Goddard, said: “Adler has been under significant liquidity stress for quite some time. It’s interesting that the group chose the English court to lead on the restructuring plan rather where the company is headquartered in Germany.
“The reason for this was because the main bond issuer was an English company with English law bonds and it needed to complete a balance sheet restructuring before the German entity needed to file for insolvency at the end of April.
“The most significant issue here is the argument by 2029 bondholders that they would likely receive a better recovery/outcome in the relevant alternative of a group-wide liquidation than the value to be provided to them in the restructuring plan. This is the first time that a meaningful argument was placed on record by dissentient creditors in a restructuring plan on the issue of valuation and realisations likely to be achieved in a liquidation. It is one of the key points on which dissentient creditors in other restructuring plans may likely seek to challenge them.
Clowry added: “The 2029s have indicated a willingness to seek to appeal the order. Without any relevant factual arguments (i.e., on the respective valuations), or a legal principle, it remains to be seen whether an appeal will be permitted.
“What’s interesting about this case is it’s the first time a cross-class cram-downed creditor has indicated a willingness to formally appeal the outcome of a restructuring plan vote.
“It is unlikely that the company can sweeten the offering to the 2029s so much so that they might be dissuaded from appealing. As to the merits of any appeal, these will stem from the bases of their challenge to the valuations used in the restructuring plan and accepted by the court.”
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