Tuesday, August 27, 2013

"Suntech Announces Director Resignations and Election of New Chairman" ($STP)

Just released:

WUXI, China, Aug. 27, 2013 /PRNewswire/ -- Suntech Power Holdings Co., Ltd. (STP) ("Suntech" or the "Company"), one of the world's largest solar companies, today announced that on August 21, 2013, each of Ms. Susan Wang, Mr. Julian Worley, and Mr. Zhizhong Qiu resigned as directors of the Company with immediate effect. Such directors indicated that they could no longer serve effectively as independent directors for reasons that included not being provided with information that was critical for them to fulfill their responsibilities and the Company's failure to implement some of their proposed actions. The issues of concern cited by the departing directors were the following:

Severe cash flow drain with unclear prospect of securing new capital;
Difficult prospects on completing consensual restructuring with convertible bondholders
Lack of clear business plan;
Loss of critical talent and potential severe HR retention issues;
Failure to pay outside legal counsel;
Potential erosion of internal controls
; and
Impairment of employees' ability to function effectively.

Mr. Philip Fan, Mr. Michael Nacson, Mr. Kurt Metzger, Mr. Weiping Zhou, Dr. Zhengrong Shi, and Mr. David King continue to serve as directors of the Company.

The remaining three independent directors, Mr. Fan, Mr. Nacson and Mr. Metzger, are of the view that the matters of concern cited by the resigning directors are demonstrative of disharmony and issues of communication between the executive management and the resigning directors that decreased the efficiency of the Board's decision-making process. The remaining three independent directors believe the large size and geographic dispersion of the Board as previously constituted was not ideal for the Company involved in a debt restructuring process because of the need for frequent in person board meetings to discuss and analyze complex issues.  Furthermore, the remaining three independent directors (i) see progress being made in regard to the issues raised by the resigning directors and (ii) believe the Board is now configured to function more effectively and efficiently with a smaller number of members, including recently appointed directors who have skills and experience relating to complex corporate restructurings.

The remaining directors have elected Mr. Nacson as Chairman of the Board.

The remaining directors have also appointed Mr. Nacson and Mr. Fan as members of each of the Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee.  Mr. Worley and Ms. Wang had previously served as the two members of the Company's Audit Committee.  Mr. Worley and Mr. Qiu had previously served as the two members of each of the Company's Compensation Committee and Corporate Governance and Nominating Committee.
Wow! That is incredible. So it sounds like the restructuring idea has gone nowhere, and these directors decided to make a very noisy exit.

Is the company perhaps planning a bankruptcy filing?


RJ said...

No way BK in the horizon.

They will continue to string along equity and debt holders until they are ruled insolvent by US courts

CP said...

Don't be so sure.

If they ever do a restructuring, it will most likely need to be done in bankruptcy court.

That's because there are a lot of potential or actual legacy liabilities that need to be cleansed:
- supply contracts
- shareholder derivative lawsuit
- securities fraud lawsuit
- dumping lawsuit
- shareholder derivative lawsuit

Plus bondholder holdouts.

Out of court only works if you can get a common class of creditors to agree to a simple exchange.

Anonymous said...

Two of the three outgoing Directors were CPAs; their resignation concerns make clear that they were stonewalled when ascertaining if Suntech is solvent.

The remaining Directors seem to want to roll the dice: if they can sign off on at least one fire sale, then a restructuring and turnaround might be possible in their view.

It is likely that the new Chairman (who was elected by bondholders) is attempting to sell assets in order to get PRC banks to sponsor a debt for equity conversion through an exchange offering.

Even if Suntech were to retain banks, lawyers, etc, a number of roadblocks might prevent an exchange offer from ever happening, in particular:
1. Suntech may need to complete a shareholder vote to authorize adequate unissued shares for an exchange offer can be made
2. Creditors may not trust managers (who ran Suntech into the ground) and may prefer an in-court liquidation
3. Out-of-court deals take time to negotiate and may take even longer to complete when accompanied by liquidity issues (such as the current credit crunch in China that is hurting Suntech's PRC lenders), as exchange offers rarely bring in additional capital.
4. The vast majority (typically over 90%) of bondholders would need to be in agreement for an exchange offer to be carried out since separate settlements would also need to be reached between dissenters and Suntech.
5. The lack of concentration of ownership among the PRC banks and offshore bondholders, in addition to the US federal lawsuits underway in NY make it even more difficult for Suntech to reach multi-party settlements while also carrying out multi-party negotiations for an exchange offer concurrently.
6. Provisions in Suntech's many debt instruments, ADR facilities, and more legal issues may prevent an exchange offer from being carried out (for example, the repercussions of a change of control).
7. Suntech's corporate structure also will likely present complex tax liabilities which could prevent an exchange offer from being carried out, in particular since debt income cancellations could result in burdensome tax consequences.
8. Last but not least, the new board needs to have a clear road map on how Suntech can exit bankruptcy in the PRC, restructure its debt, and return to profitability in order to make an debt for equity exchange offer attractive to creditors.

A number of other factors may also prevent Suntech from having the capital necessary to carry out an exchange offer, such as:
I) The failure of Wuxi Suntech creditors to extend bankruptcy on or by September 20 as well as a forced shotgun merger with a state owned enterprise thereafter;
II) The failure of Suntech Holdings to file restated 2010-2012 financials (accounting for the $600M GSF loss) and a 2012 annual report, as well as updates on the company's overall debt situation;
III) If Suntech were forced into Caymen involuntary insolvency proceedings by bondholders who could establish a lien via a judgement ruling in the US; and
V) If Suntech's line of credit no longer revolves and it becomes insolvent.

Cayman law is very creditor friendly and it would take a very brave board to continue operating an insolvent Cayman holding company.

Cayman insolvency proceeding are not as rescue oriented as US Chapter 11 or UK administration, but rather focus on arranging an orderly liquidation.

It is very unlikely that Suntech would be able to negotiate a pre-pack with its many creditors or carry one out under Cayman law.

Consequently, if an exchange offer fails, then Suntech's new board will need to direct 100% of their attention to pre-negotiating asset sales and commencing with voluntary insolvency.

Anonymous said...

Everyone is putting too much faith in the board doing the right thing..

This is China, they don't care about foreign investors.

John said...

Good info anonymous..any idea what happens on friday? Do you think the bondholders will agree to another forbearance agreement?