NN2 Newco Ltd

JurisdictionEngland & Wales
JudgeMr Justice Norris
Judgment Date22 July 2019
Neutral Citation[2019] EWHC 1917 (Ch)
CourtChancery Division
Docket NumberCase No: CR-2019-004293 and CR-2019-004294
Date22 July 2019
In the Matter of NN2 Newco Limited

and

In the Matter of Politus BV

and

In the Matter of the Companies Act 2006

[2019] EWHC 1917 (Ch)

Before:

THE HON Mr Justice Norris

Case No: CR-2019-004293 and CR-2019-004294

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Daniel Bayfield QC, Georgina Peters and Lottie Pyper instructed by Freshfields Bruckhaus

Deringer for the NN2 Newco Limited and by Clifford Chance for Politus BV

Hearing dates: 4 July 2019

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Norris
1

The Nyrstar Group is a global multi-metals business prominent in the zinc and lead markets. It conducts its mining, smelting and other activities through operating companies in Europe, the USA, Canada and Australia; it employs approximately 4200 people. A major customer of the Nyrstar Group (and owner of a minority interest) is the Trafigura Group.

2

The head of the Nyrstar Group is Nyrstar NV (“NNV”) a company incorporated in Belgium and with its corporate offices in Zurich, Switzerland. The ordinary shares of NNV are traded on the Brussels exchange.

3

Until recently NNV's direct subsidiary (now indirect subsidiary) was Nyrstar Netherlands (Holdings) BV (“NNH”). NNH is a Dutch company which functions as the holding company for most of the operating subsidiaries. One of its subsidiaries is Nyrstar Sales & Marketing AG (“NSM”), a Swiss company.

4

Funding for the Nyrstar Group was achieved through several financial arrangements. Chief of those with which I am concerned are

I will return to deal with each in some greater detail (describing their present form) after dealing with the trading background.

  • (a) two series of notes issued by NNH maturing respectively in 2019 and 2024 (“the 2019 Notes”, “the 2024 Notes” and together “the Existing Notes”);

  • (b) some convertible bonds issued by NNV due for payment in 2022 (“the Existing Bonds”);

  • (c) a €600 million multi-currency revolving structured commodity trade finance facility governed by English law maturing in December 2021, available to NSM (“the Trade Facility”);

  • (d) a €150 million loan (“the Politus Loan”) by Politus BV (“Politus”) to NSM under an agreement dated 24 April 2018 and later amended and restated (“the Politus Agreement”) which was itself funded by Politus under an arrangement (“the Politus Facility”) with a syndicate of six lenders (“the Politus Lenders”).

5

In the second half of 2018 the Nyrstar Group's trading position became seriously affected by a deterioration in commodity prices accompanied by inflationary cost pressures (particularly in relation to energy costs) and adverse currency movements. These were compounded by operational challenges arising from the shutdown for maintenance of a main smelting facility and delayed re-commencement of some mining operations. These “headwinds” led to a halving of underlying profitability and a 49% increase in net debt. The Nyrstar Group therefore had to address those trading and short-term liquidity challenges, particularly in view of the pending maturity of the 2019 Notes. It did so in October 2018 by initiating a review of its capital structure, retaining well-known financial advisers for this purpose. This, however, generated negative press coverage which in turn led to a sudden and unexpected deterioration in the Group's liquidity as lenders suspended uncommitted credit lines or required cash collateral.

6

Some existing noteholders (now holding 65% of the 2019 Notes and 78% of the 2024 Notes) and some existing bondholders (65% by value) formed an “ad hoc group”, whilst some lenders formed a “co-ordinating committee”, each with a view to participating in the capital structure review. The Group obtained additional finance from Trafigura. This took the form of a $650 million secured committed trade finance framework agreement made available in December 2018 and expiring in June 2020. This averted a short-term liquidity crisis.

7

Out of these negotiations emerged a proposal for a capital and debt restructuring involving (i) the release and transfer back to NN2 of the Existing Notes and the cancellation of the Existing Bonds and their substitution (after a “haircut”) with new instruments issued by Trafigura, and (ii) the elimination of the Politus Loan and its replacement by a new facility agreement arranged directly between NSM and the Politus Lenders. To achieve this end (i) variations in the terms of the Existing Notes and the Existing Bonds were made using amendment mechanisms included in their original terms and (ii) NN2 Newco Limited (“NN2”) was incorporated in England to promote a scheme of arrangement (NN2 being inserted as an intermediate holding company in the corporate structure). To provide some stability as the negotiations progressed (i) fees became payable by NSM to members of the Co-ordinating Committee as they worked on the plan (ii) work fees became payable by Trafigura to members of the ad-hoc committee as they likewise worked on the plan (iii) various “lock-up” agreements were entered into (open to all) and (iv) consent fees became payable to those who signed up promptly to the “lock-up” agreements. I shall have to return to these.

8

The likely alternative to the capital restructuring which has emerged is group insolvency in multiple jurisdictions: that effectively means liquidation in one form or another because of the absence of restructuring procedures in other jurisdictions. The evidence includes Estimated Outcome Statements prepared by Alvarez & Marsal Europe Limited on a liquidation basis and on both “low case” and “high case” assumptions. The “low case” assumes a liquidation in which there is an immediate cessation of trade and an immediate realisation of assets: the “high case” assumes a funded insolvency process in which trading continues whilst a more extended sales process is undertaken. In NN2 the holders of Existing Notes and Existing Bonds might recover between 0.9% and 11.6% of their claims. In Politus the Politus Lenders might recover between 0.5% and 1.6% of their claims.

9

Against that background I can now describe the obligations which are the subject of the proposed scheme.

10

Both the Existing Notes and the Existing Bonds have been issued in global form, where the legal owner is a fiduciary holding on behalf of the relevant clearing system (within which book entries record the underlying beneficial entitlements). The terms of the Existing Notes and the terms of the Existing Bonds contain provisions which enable the owner of a book entry interest to require the delivery of definitive notes or definitive bonds in identified circumstances. It is established at first instance that in such cases the person who has the economic interest in the debt is properly regarded as a contingent creditor of the company: see for a recent example Re Magyar Telecom BV [2014] BCC 448 at [5] per David Richards J.

11

The 2019 Notes consist of €350 million of 8.5% unsecured senior notes issued by NNH with a final maturity date of 15 September 2019, under which NN2 is now co-issuer. The aggregate principal amount of €340 million is currently outstanding. They are now governed by English law (in place of New York law). Clause 12.06 of the governing Indenture now reads:-

“The courts of England and Wales shall have jurisdiction to settle any disputes that arise out of or in connection with the Indenture, the Notes and the Guarantees, and accordingly any legal action or proceedings arising out of or in connection with the Indenture the Notes and the Guarantees (“Proceedings”) may be brought in such courts. The courts of England and Wales shall have exclusive jurisdiction to settle any Proceedings instituted by [NNH or NN2]… in relation to any Holder or the Trustee on behalf of the Holders (“Issuer Proceedings”). [NNH and NN2], each of the Guarantors, the Trustee and each Holder (each, “a Party”) irrevocably submit to the jurisdiction of such courts and agree that the courts of England and Wales are the most appropriate and the most convenient courts to settle Issuer Proceedings and accordingly no party shall argue to the contrary. Notwithstanding the foregoing, this section 12.06 shall not limit the rights of… each of the Holders to institute any Proceedings against [NNH and NN2] in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of proceedings in any other jurisdiction….”.

This is an asymmetric jurisdiction clause. The English Courts have jurisdiction over all disputes and the parties agree that they are the most convenient forum and submit to the jurisdiction of the English courts. NNH and NN2 are bound to use the English courts if they sue the Holder of a Note, because the English courts have exclusive jurisdiction in such a case. But the Holder of a Note can also sue NNH and NN2 in any Court that otherwise has jurisdiction, so the English courts have a non-exclusive jurisdiction in such a case.

12

The 2024 Notes consist of €500 million of 6.875% unsecured senior notes issued by NNH with a final maturity date of 15 March 2024 under which NN2 is now co-issuer. The aggregate principal amount of €500 million is currently outstanding. The 2024 Notes rank pari passu with the 2019 Notes. They are now governed by English law (in place of New York law). The same asymmetric jurisdiction clause applies.

13

The Existing Bonds consist of €115 million senior guaranteed unsecured convertible bonds issued by NNV with a coupon of 5% and a final maturity date of 11 July 2022. They are guaranteed by some NNV subsidiaries. The whole issue is currently outstanding. With the assent of 97.57% of the holders of the Existing Bonds NN2 is now...

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