Ezra noteholders seek rights issue, cash from escrow
Observers warn against getting hopes up on recovering most of what they are owed
Singapore
EZRA Holdings' noteholders want the founding Lee family behind the debt-laden listed group to consider a rights issue as a restructuring plan is being drawn up for its Chapter 11 filing under the US bankruptcy code.
Noteholders also sought clarity on whether an escrow account the group pledged to set up for their benefit in March 2016 can ring-fence cash for the purpose of repaying the interest or principal sum of the S$150 million note issue.
Ninety-three noteholders attended a dialogue session on Monday evening organised by the Securities Investors Association Singapore (SIAS).
SIAS president David Gerald told The Business Times that in addition to hearing about the updates on Ezra, noteholders also appealed for the board of the listed group to consider a rights issue and for the Lee family to subscribe additional equity to show their commitment.
BT understands, however, that any rights issue has to be put forward within the confines of Ezra's restructuring plan to be tabled before the US court.
Separately, bond specialist Terence Lin of iFast flagged the company's response confirming that an escrow account had been set up following a previous consent solicitation exercise with noteholders.
As indicated in Ezra's March 22, 2016, disclosure on the escrow account, otherwise known as an interest service reserve account, the group would have set aside an amount equal to at least two successive interest payments towards its outstanding notes.
But observers cautioned noteholders against getting their hopes high on recovering most of what the beleaguered group owes to them.
Robson Lee, a partner at law firm Gibson Dunn, said that for a start, with the stay on all claims and enforcement actions against the assets of the Ezra Chapter 11 entities, "it is doubtful whether noteholders can demand for any purported escrow account monies . . . to be used to pay any outstanding coupon payments".
Mr Lin of iFast concurred that drawing down the escrow account in time for coupon payments may be unlikely, but he suggested that "the cash in the escrow account could form the (only) security" noteholders can lay claim to.
On the cash sought through a rights issue, observers pointed out that this will have to be pumped in as super-priority rescue financing into any entity under Chapter 11 protection. The fresh cash injection can then be ring-fenced for rehabilitating the Ezra group of companies.
But OCBC Credit analyst Nick Wong warned in a March 14 research note that such rescue financing could subordinate noteholders' claims. "In the event that the company fails in its restructuring and is wound down, recoveries for noteholders could potentially be lower as a result."
These preliminary observations are subject to the finer details of Ezra's restructuring plan, which has to be tabled before the US court within the 120 exclusive period from its Chapter 11 filing unless the group seeks extension to do so.
Noteholders have also been advised that more can be done for the group's creditors under Chapter 11 protection compared to a winding-up petition.
Mr Lin pointed out that the biggest concern of the holding company is the billions of US dollars in contingent liabilities on its books from corporate guarantees extended to its associates or subsidiaries.
In contrast, the holding company has few unpledged assets that can be sold to pay off its outstanding debts with unsecured creditors.
Mr Gerald highlighted noteholders' unhappiness over the absence of the notes trustee at Monday's dialogue session. He also said that SIAS will take up with the Monetary Authority of Singapore the current unsatisfactory status of the trust deed, which offers little help to noteholders.
HSBC Institutional Trust Services (Singapore) Ltd is the trustee for Ezra's S$150 million notes.
