U.S. creditor looks to intervene in suit against APP

U.S. creditor looks to intervene in suit against APP

Dow Jones, New York

A U.S. creditor is looking to intervene in a lawsuit against
Asia Pulp & Paper Co. and its Indonesian subsidiaries, arguing it
could backfire on bondholders participating in the company's
multi-tiered debt restructuring process.

The New York State Supreme Court will hold a hearing next week
on whether Fintech Advisory Inc. can intervene on a lawsuit filed
by U.S. Bank National Association against APP, APP International
Finance Co. and three other units regarding some US$450 million
in defaulted debt.

The trustee U.S. Bank is suing the companies on behalf of
bondholders to recover losses on the debt, which has been mired
in default for three years. In a recent motion, Fintech claimed
the litigation is costly for creditors and that U.S. Bank didn't
provide sufficient proof that an appropriate quorum of
bondholders gave the green light to accelerate payment on the
bonds.

The case marks the latest conflict to arise out of APP's $13.9
billion debt restructuring, which aims to resolve the largest
corporate default in emerging markets history. The world's 10th-
largest paper producer, APP, which is incorporated in Singapore,
stopped repaying its debt in March 2001 after years of
overexpansion. APP also has operations in China.

Fintech is participating in a $6.7 billion restructuring plan
that APP's Indonesian affiliates are trying to formalize.
However, the process has be complicated by numerous lawsuits from
other creditors, including the U.S. Export-Import Bank, which
claims the restructuring is unfavorable to bondholders.

New York-based Fintech owns $8.87 million of so-called Lontar
notes that were issued in the mid-1990s by APP Finance and
guaranteed by APP and P.T. Lontar Papyrus Pulp & Paper Industry.

The firm said it wanted to intervene in the U.S. Bank suit
"because this action interferes with the implementation of the
restructuring plan proposed by (APP), and threatens to deprive
the holders of the Lontar Notes, including Fintech, from
obtaining the benefits of such restructuring plan."

U.S. Bank's lawyer declined to comment on the matter.
Creditors holding about 40 percent of the $6.7 billion debt in
October signed on to the restructuring plan, which needs approval
from investors holding at least 90 percent of the debt to
succeed.

Under the agreement, the debt won't be repaid for as long as
22 years.

It's hard to tell whether APP's proposal is fair or
appropriate because "three years after the default, there hasn't
been any public solicitation to global bondholders" from the
company or its affiliates, said Robert Rauch, a managing director
at Gramercy Advisors LLC. Gramercy won a $395 million judgment
against APP with other creditors in April.

Rauch said the judgment includes some of the debt being
represented in the U.S. Bank lawsuit, and added that he wasn't
sure what was driving Fintech, given its relatively small
holdings.

Fintech's lawyer, Arthur Handler, said that even if U.S. Bank
succeeded in winning a judgment, it's unlikely to be enforced by
Indonesian courts, which have placed an injunction on any
lawsuits related to the Lontar notes.

According to the filing, the injunction imposes a fine of
$100,000 per day if violated. As such, the U.S. Bank lawsuit has
racked up $2.2 million in fines ove the past year, a cost that
will ultimately be passed on to creditors. Fintec also maintained
that U.S. Bank didn't specify that it had obtained the minimum 5%
in aggregate principal of the bonds to accelerate the debt
payments.

"No such demand or direction is alleged by U.S. Bank in its
amended complaint, though they are necessary prerequisites to the
initiation of suit," the filing said.

The upcoming hearing on this case comes amid reports that
APP's China unit won court approval for a debt restructuring plan
last year based on votes from a significant number of APP
employees who may not have been legitimate creditors.