Monday, March 11, 2013

Suntech Needs to Read Its Own Bond Indenture

This is rich - Suntech says that it has signed a forbearance agreement with 60% on the 2013 note holders, which the financial media has taken to mean that it has delayed the deadline for bond repayment until May 15. However, the bond indenture clearly says that,

Subject to certain exceptions, the holders of a majority in aggregate principal amount of the outstanding notes may waive our compliance with any provision of the indenture or notes. However, without the consent of the holders of each outstanding note affected, no amendment, supplement or waiver may: change the stated maturity of the principal of, or the payment date of any installment of interest or additional interest on, any note;


Except as provided in the indenture, the holders of a majority of the aggregate principal amount of outstanding notes may, by written notice to the trustee, waive any past default or event of default and its consequences, other than a default or event of default: in the payment of principal of, or premium, if any, or interest or additional interest, if any, on, any note or in the payment of the fundamental change repurchase price;
These are bedrock rights of bondholders. In the U.S., they are made part of contracts whether explicitly included or not, because of the Trust Indenture Act:
(b) Prohibition of impairment of holder’s right to payment.
Notwithstanding any other provision of the indenture to be qualified, the right of any holder of any indenture security to receive payment of the principal of and interest on such indenture security, on or after the respective due dates expressed in such indenture security, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder, except as to a postponement of an interest payment consented to as provided in paragraph (2) of subsection (a) of this section, and except that such indenture may contain provisions limiting or denying the right of any such holder to institute any such suit, if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver, or loss of the lien of such indenture upon any property subject to such lien.
What does Suntech think that it is accomplishing by getting some of the creditors to delay repayment? This is not a democracy.


jHurt said...

Section 9.02 might be the most clear (

Paraphrasing: Company may amend the indenture, but notwithstanding the consent of each holder of each security, it may not

(i) change the stated maturity of the principal of, or the payment date of any installment of interest or additional interest on any Security;

CP said...

Yep, there's no mistaking it.

C.R.L. said...
This comment has been removed by the author.
C.R.L. said...

Suntech Required to Make Debt Payment on Friday, Bondholders Say

By Ehren Goossens and Justin Doom
March 13 (Bloomberg) -- Suntech Power Holdings Corp., the
Chinese solar-panel maker that announced a forbearance agreement
March 11 for $541 million in convertible debt, may be required
to pay bondholders who haven’t agreed to the deal.
About 60 percent of the bondholders have agreed to wait
until May 15 before exercising their rights, the company said in
a statement.
Some of the remaining 40 percent of bondholders said they
weren’t contacted by the Wuxi, China-based company about a
forbearance and want to be paid on schedule March 15. Suntech is
seeking to restructure its debt after reporting losses for the
past two years. It may not be able to delay the bond payments,
said Adam Cohen, the founder of Covenant Review, a research firm
in New York.
The bondholders have an “absolute right” to be repaid the
principal when the bonds mature, Cohen said in an interview
yesterday. “It doesn’t matter that a majority or 60 percent
wants to wait 60 days.”
Trondheim Capital Partners LP, a distressed-debt hedge
fund, owns enough of the Suntech bonds “to make it worthwhile
to file a petition to sue if they don’t pay us,” said Colin
Peterson, the Scottsdale, Arizona-based company’s managing
director. Suntech didn’t contact Trondheim before announcing the
forbearance agreement, he said.
“I’m investigating what our remedies would be,” he said
“I think a bondholder could file for involuntary bankruptcy or
sue for payment.”
Bondholders who haven’t signed the forbearance agreement
have “the right when that payment is missed on Friday to bring
action in state court immediately or take steps toward an
involuntary bankruptcy petition,” James Millar, a partner at
the law firm Wilmer Cutler Pickering Hale and Dorr LLP in New
York, said yesterday in an interview.
“Every piece of information that I’ve looked at suggests
that they will default on Friday,” said Millar, who said he has
been contacted by Suntech bondholders.