Project Lietzenburger Strasse Holdco S. À R.L.
| Jurisdiction | England & Wales |
| Judge | Mr Justice Miles |
| Judgment Date | 01 November 2023 |
| Neutral Citation | [2023] EWHC 2849 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2023-006021 |
[2023] EWHC 2849 (Ch)
Mr Justice Miles
Case No: CR-2023-006021
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY & COMPANIES LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Tom Smith KC, Ryan Perkins and Edoardo Lupi (instructed by DLA Piper UK LLP) for Project Lietzenburger Strasse HoldCo S.à.r.l.
Georgina Peters (instructed by Sullivan & Cromwell LLP and Greenberg Traurig, LLP) for Nofe Investment S.à r.l. and AXA Real Estate Investment Managers SGP
Hearing dates: 1 st November 2023
APPROVED RULING
This is an application, by Project Lietzenburger Strasse HoldCo S.à.r.l. ( the Plan Company) to convene three meetings of its creditors to consider and, if thought fit, approve a restructuring plan ( the Plan) under Part 26A of the Companies Act 2006.
The Plan Company is a holding company incorporated in Luxembourg. It contends that it has recently moved its centre of main interests ( COMI) to England for the purpose of proposing the Plan. The Plan Company is part of a wider group of companies incorporated in Luxembourg and Germany ( the Group). One of the companies within the Group owns a development site on the Kudamm, 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 Group has three basic tranches of secured debt, ranking in the following order: (1) senior debt, of about €775 million; (2) the tier 2 debt of about €150 million; and (3) the junior debt of about €95 million. The plan creditors under the proposed Plan are the holders of the senior debt, the tier 2 debt and the junior debt. The total secured debt exceeds €1 billion. All of the relevant debt documents are governed by German law.
The Plan Company is a guarantor of the secured debt and it recently assumed the position of a primary obligor by executing a deed of contribution.
The Development has suffered from substantial cost overruns. Construction was substantially halted in January 2023 and came to a complete stop in May 2023. The Group's cash is trapped in a blocked account, save for certain emergency liquidity facilities. All three tranches of the Group's secured debt will fall due for repayment on 28 November 2023 and the Group has nowhere near enough cash to repay the sums due. The basic purpose of the Plan is to restore the Group to solvency by restructuring the Group's debt and secured debt and enabling the provision of new money to allow for the completion of the Development.
If the Plan fails, the Plan Company contends and has served substantial evidence to show that the relevant alternative to the Plan is formal insolvency proceedings for the Group. The evidence provided by the Plan Company, supported by expert evidence, shows that the tier 2 debt and the junior debt are wholly out of the money. Under the terms of the Plan, the maturity of the senior debt will be extended to 28 November 2025 and the tier 2 debt and junior debt will be released in their entirety.
For the purposes of this hearing, the main evidence is given by Mr Beckwith on behalf of the Plan Company, supported by an expert report of Ms Rickelton of FTI Consulting. There is also a witness statement of Mr Paul Cattermole of GLAS, the information agent.
The Plan Company is, as I have said, part of a group of companies. The Development is owned by a Luxembourg incorporated company which has been called PropCo in the evidence. 89.9% of the share capital of PropCo is ultimately owned by Aggregate Holdings S.A. (Aggregate), a German real estate business. 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 share capital. 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), which is an indirect wholly owned subsidiary of Aggregate. As I have said the Plan Company is an intermediate holding company.
The minority equity interest of some 10.1% is held by external investors, which is apparently a shareholdings structure designed to mitigate the impact of German real estate transfer tax on any future sale of the development. This structure is apparently an example of something which is very common in large German real estate projects.
The various tranches of debt which I have described consist of both loans and notes in each case. They are treated in relation to each separate tranche together as the totals which I have already mentioned. There is a common security package which is governed by an intercreditor agreement held by a security trustee on behalf of the secured creditors which sets out the order of priority, first the senior debt, second the tier 2 debt, and third the junior debt.
The intercreditor agreement, the trust agreement, which governs the powers of the security trustee, and the finance documents in respect of the secured debt are all governed by German law.
The development is a mixed-use site and is divided into seven building parts. Of those parts only one is substantially complete. I was provided with evidence about the valuation of the Development. The Development has run into very substantial cost overruns. The business has been affected by the substantial increase in interest rates. Between July 2022 and September 2023, the ECB fixed rate increased from 0.5% to 4.5%. There has also been a downturn in macroeconomic conditions in Germany. There has also, as is well-known, been a very substantial inflation in relation to the costs of construction materials and labour.
As already noted, the construction of the Development was substantially halted in January 2023 and came to a complete stop in May 2023.
A payment default is certain to occur on 28 November 2023, when over €1 billion of secured debt will fall due for payment. The Group has nowhere near sufficient liquid assets to repay the debt.
There have been protracted negotiations between the Plan Company and the holders of the senior debt and between the holders of the senior debt and the other classes of debt which have been going on, as I understand from the evidence, for many months.
As the Plan Company lacked liquidity, certain creditors who make up the senior creditors' committee agreed in September 2023 to provide interim liquidity facilities to the Group in the sum of about €32 million. Those facilities were unsecured and therefore rank behind the senior debt, the tier 2 debt, and the junior debt; they will fall due for repayment on the earlier of the restructuring effective date, i.e. the date when the Plan becomes effective, or the date falling four months from the date when the interim facilities were entered into. If the Plan fails the interim facilities can be accelerated by the lenders.
It has been agreed that all senior creditors are entitled, if they wish, to participate in the interim facilities on a pro rata basis at any time before 28 November 2023. The Plan Company's evidence states that it has been apparent for a good time that the holders of the tier 2 debt and the junior debt are wholly out of the money. The evidence shows that the senior creditors nonetheless sought to negotiate a consensual settlement or compromise which would lead to a restructuring with all of the classes of creditors. That negotiation has not been successful and ultimately this Plan has therefore been proposed.
Other creditors have brought proceedings in the courts of Luxembourg, seeking to wind up the Plan Company. A representative of one group of creditors which holds tier 2 debt had its petition dismissed by the Luxembourg Court on 20 October 2023. As I understand it, there is another outstanding petition before the Luxembourg Court.
On 16 October 2023 the Plan Company entered into a lock-up agreement with certain of the senior creditors and various other parties. The parties to that agreement have agreed to support the Plan. At the time of this hearing, I was told that over 89% of senior creditors have either signed up to the lock-up agreement or entered into a standstill agreement.
The Plan Company has taken a number of steps to move its COMI to England in order to seek to ensure that the court has jurisdiction in relation to the Plan. These steps include a number taken over the last three weeks or so.
I have already explained what the Plan is designed to do in relation to the existing debt. As I have already said, part of the purpose of the Plan is to facilitate the introduction of new money. All of the senior creditors will be entitled, though not obliged, to participate in a new tranche of super-senior financing with a principal amount of €190 million. The senior creditors will be entitled to participate in this financing pro rata to their existing holdings of senior debt. The deadline for agreeing to participate in the senior financing will be 1 December 2023. This financing will rank in priority to the senior debt.
The new super-senior financing has been sized so as to enable the Group to complete the Development. It will also be used to repay the interim facilities and other transaction costs. There would be an elevation incentive for any senior creditors who agreed to participate in the super-senior financing. The basic idea is that senior creditors who participate in the super-senior financing will be given an enhanced priority position in the post-restructuring waterfall as regards part of the existing debt. The...
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