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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

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Comments and questions
6

This is the privatisation by stealth program that has been running

Let it go broke. The best possible news for the West Coast. Al those prime mining licences(many on Coal reserves which do not have the resource consent issues) would be sold to properly managed companies and at the end of the day the government will get the same return just via tax instead of dividends (which to be fair are currently highly unlikely)

Did NBR readers realise the Company is paying $25,000 per week to rent the Head Office (Dubbed the "Palace") in Christchurch. The lease runs out in January 2019!

Unbelievable how those Directors were allowed to build an empire in that manner and when it all collapses the West Coast pays the price.

Where is Mr John KEY and his team of rescuers? Do the same to Solid Energy like desperate Air NZ before and then flop it off at a later date perhaps at a better price...

Tom, I think your abit nostegic.
Solid Energy has rubbish low value coal, in low volumes which needs to be transshipped across the pass. The Hunter Valley System and Wiggins Island projects will always eat Solid Energies lunch...
You are right however, it should go broke!!

I might be nostalgic Bob but you are badly misinformed.

If it is such low value how come they have been transporting the stuff through the tunnel for years?(and continue to do so) Buller Coal(in particular) is solely responsible for keeping Lyttleton Port profitable.

And how come Brent Francis(another whose coal goes through the tunnel) can underwrite the Crusaders for $2m when Solid Energy is going broke?

That West Coast/Buller coal is superior to anything the Aussie's can produce and that is why it is economic to spend a fortune getting it(via the underground mining) and transporting it

It is simply the another typical quasi governmental organisation loading up the Company with massive management overhead(and in this case the 'Palace' to pay for as well)

Isn't is great that John Key is happy to throw money of many many millions into a debt ridden, stand alone, limited liability company, but won't pay the $3 million to help pay for the Pike River Coal mine victims.

Surely a prime example of double standards as weren't some of the other Government related SOE shareholders in Pike River.

Also surely under the Companies Act Solid Energy is insolvent and should be liquidated.