Evergrande Bankruptcy - What's the fulcrum security?
With Evergrande being tested on these upcoming interest payments a restructuring looks imminent.
Theoretically, let's say Evergrande files and Xi doesn't bail them out. Does anyone have the time to comb through their 10K to find potential fulcrum securities?
This will largely depend on how poorly the debt gets hammered, but curious to hear if there are any well-known approaches to determining this/if there is a way to find this out?
This might be tough to answer without a very strong knowledge of Chinese bankruptcy law.
Having done absolutely ZERO research, I would think that, if the situation is as fucked as it seems, the 1L might be the fulcrum. But there are all sorts of intercreditors, cross-holders, and other dynamics that will almost certainly make this a messy filing.
interesting, bump. They have both dollar and RMB denominated debt though so I'm curious to see how that plays out
I’ve been through a couple of sovereign-involved bankruptcies in Europe. Namely banks. Where the biggest question is around bailouts and what the government will do and which creditors will they cherry pick to bail out.
I don’t think valuation is remotely the biggest issue, nor are chinese bankruptcy laws. This literally comes down to whether or not the CCP butts in (which is very likely) and then which tranches it decides are worthy. Like the retail held vs. institutional, foreign vs. domestic etc.
The fulcrum security is a result of impaired classes of creditors (not receiving 100% recovery on their claims) that are most likely to be converted to equity (via negotiations during bankruptcy proceedings). You have to perform a liquidation analysis and prepare a waterfall of recoveries going from the most senior class of creditors (the secured lenders) all the way down to classes on unsecured creditor claims (like trade credit from vendors) and equity being the lowest on the list (but equity would likely be wiped out with the new equity issued to more senior creditor classes that are impaired in order to obtain the votes for confirmation of a plan).
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