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.