Syncreon Group B.v

JurisdictionEngland & Wales
CourtChancery Division
JudgeMrs Justice Falk
Judgment Date31 Jul 2019
Neutral Citation[2019] EWHC 2068 (Ch)
Docket NumberCase No: CR-2019-004856

[2019] EWHC 2068 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

COMPANIES LIST (ChD)

Royal Courts of Justice

Fetter Lane, London, EC4A 1NL

Before:

Mrs Justice Falk

Case No: CR-2019-004856

In the Matter of Syncreon Group B.V.
In the Matter of Syncreon Automotive (UK) Ltd
And in the Matter of the Companies Act 2006

Mark Arnold QC and Adam Goodison (instructed by Weil Gotshal & Manges (London) LLP) for syncreon

Hearing date: 25 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.

Mrs Justice Falk Mrs Justice Falk
1

These are my written reasons for granting an application by Syncreon Group BV (“syncreon Group”) and Syncreon Automotive (UK) Ltd (“syncreon UK”) for an order pursuant to section 896 of the Companies Act 2006 convening meetings of certain classes of creditors for the purpose of considering, and if thought fit approving, schemes of arrangement proposed to be made pursuant to Part 26 of the Companies Act 2006 (“the Schemes”), and related directions and orders. I made the order in broadly the terms requested at the hearing on 25 July.

2

Syncreon Group is a private limited company incorporated under the laws of the Netherlands. Syncreon UK is a company incorporated in England and Wales. Both are held directly or indirectly by a further Dutch company, syncreon Group Holdings BV (“Parent”). I shall refer to the group headed by the Parent as the “Group”. There is a further ultimate parent of the Group, called syncreon Global Holdings Limited.

3

The Group carries on the business of specialised contract logistics in the automotive and technology industry. The Group considers that it is significantly over-leveraged and is unlikely to be able to continue in business without restructuring its debt, and that the likely alternatives are enforcement action leading to an accelerated sale or piecemeal insolvency procedures. The Schemes form a key part of the proposed restructuring.

4

The Schemes relate to debts owed under a Parent Credit Facility (“PCF”) dated 28 October 2013 and debts owed under a Notes Indenture dated 23 October 2013 (the “Notes”). The Notes are traded through the Depositary Trust Company (DTC). There have been defaults under both the PCF and the Notes. Syncreon Group is the principal borrower under the PCF and the debt is guaranteed by certain other members of the Group, including syncreon UK. The PCF debt is also secured. The principal amount outstanding pursuant to the PCF is approximately US$680m, comprising amounts due under term loan and revolving credit facilities. Syncreon Group is also the Note issuer, and has issued US$225m of Notes, held in global registered form by DTC. References to Noteholders below are to persons with beneficial interests in the Notes. Like the PCF, the Notes are guaranteed by certain other Group members including syncreon UK, but unlike the PCF the Notes are unsecured.

5

Under the proposed restructuring, the PCF debt would be released in exchange for restated debt of US $225m (referred to as “Second Out Term Loans”) owed by syncreon Group and 80% of the equity in a new Dutch parent company (“Newco”), and the Notes would be released and exchanged for a 4.5% interest in the equity of Newco together with warrants representing the right to acquire 10% of such equity. The Group estimates that as a result (and taking account of the additional lock-up amounts referred to below) the PCF lenders could receive between 59% and 72% of the principal amount of the debt, as compared to between about 11% and 45% in the event of an accelerated sale or insolvency procedures, and that Noteholders could receive between 7% and 10%, as compared to 0% to 0.81% in the event of an accelerated sale or insolvency procedures.

6

The Group has assets and revenues in a number of jurisdictions. The United States, Germany, the Netherlands, the United Kingdom, Canada and Ireland together account for over 80% of Group revenue, and over 80% of the Group assets are located in the United States, Germany, the Netherlands, the United Kingdom and Canada. Of these, the United States and Canada are two of the most significant, and the intention is to apply for recognition of the Schemes in those two jurisdictions. Expert advice has been obtained in respect of both of those jurisdictions and the Netherlands to the effect that the Schemes should be recognised by the courts of those jurisdictions. Recognition by the US Bankruptcy Court (via an order under Chapter 15 of the US Bankruptcy Code in respect of syncreon UK, which it is anticipated will result in effective recognition of the syncreon Group Scheme) and by the Canadian court are conditions to the implementation of the restructuring.

7

Both the PCF and the Notes are now governed by English law and contain provisions submitting to the non-exclusive jurisdiction of the English courts. This was the result of amendments made earlier this month, which were made with the express purpose of strengthening the connection to the English jurisdiction with a view to permitting a restructuring using English schemes of arrangement. The changes were made pursuant to the majority amendment powers contained in the PCF and in the Notes Indenture. The agreements were previously governed by New York law, and the evidence included advice from an expert in New York law concluding that the changes are valid and enforceable.

8

The largest PCF lender and Noteholder by value is Syncreon CayFinance Ltd (“CayCo”). This company is 100% owned by the ultimate parent of the Group and is therefore an affiliate of the Group. It is the sole lender under one of the term loan facilities forming part of the PCF, the incremental term loan facility. Cayco has also granted certain additional security to lenders under the revolving credit facility element of the PCF, in return for their agreement to extend the term of the revolving loans.

9

The Group has other indebtedness that will not be covered by the Schemes and which it is proposed will be refinanced consensually. In particular, syncreon Group entered into a secured liquidity facility in March 2019. This was provided by certain PCF lenders to provide the Group with liquidity to operate its business during the negotiation and implementation of the restructuring. There is currently US$75.5m outstanding under this facility, which benefits from the same guarantees and security as the PCF, as well as certain additional guarantees and security. Under an intercreditor arrangement it ranks senior to the PCF. In addition, another member of the Group (not party to these proceedings) has borrowed under a secured receivables facility agreement referred to as the ABL debt, the current principal amount outstanding being approximately US$80m.

10

A Restructuring Support Agreement (“RSA”) was entered into in May 2019 with an ad hoc group of PCF lenders, certain key Noteholders and CayCo, together representing a substantial majority by value of the PCF lenders, Noteholders and all the lenders under the liquidity facility. Among other things the RSA contains provisions for relevant parties to vote in favour of the Schemes, together with provisions restructuring the ABL and liquidity facility by consent. The RSA makes provision for a new super priority facility (“First Out Term Loans”) of US $125.5m, of which US$75.5m represents a restructuring of the liquidity facility and US $50m is new money. The RSA also makes provision for lenders under the liquidity facility agreement to receive a total of 2.5% of the equity of Newco for agreeing to amend it and agreeing to forbear enforcement.

11

Under a further agreement entered into in June 2019 the new First Out Term Loans facility is “backstopped” by certain PCF lenders, in the sense that they have agreed to fund the whole of it insofar as it is not taken up by others, in return for consideration amounting to 5% of the equity of Newco (the “Backstop Payment”). CayCo has also agreed to make available (“turnover”) potential funding rights to some PCF lenders, being lenders under the revolving credit facility. Other non-participating PCF lenders are being given the opportunity to participate in part of the new lending.

12

The Group took the view, with advice from its financial advisers, that there was no practical alternative to securing the urgent funding required except from members of an ad hoc group of PCF lenders.

13

Since the RSA was signed, additional creditors have acceded to it. PCF lenders and Noteholders that entered into or otherwise acceded to the RSA by 22 July will qualify for “lock-up” payments if the restructuring proceeds. These lock-up payments take the form of 5.5% of Newco equity for PCF lenders and 2.5% for Noteholders. As at 23 July the RSA has been signed by...

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    ...of the Interim Notes, which are in place irrespective of the Scheme. 56 Mr Allison relied on my decision in Re Syncreon Group BV [2019] EWHC 2068 (Ch), where I concluded that there was no class issue in respect of a benefit conferred in respect of a secured liquidity facility that had been......

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