English court sanctions Adler restructuring plan despite pari passu challenge

Quick read

Please note that this judgment was set aside by the Court of Appeal on 23 January 2024, see our alert here.

The High Court has handed down the most significant decision on restructuring plans since Virgin Active in 2021, applying cross-class cram down to an ad hoc group of dissenting noteholders (the AHG).

Background

Adler is a German real estate group with various series of German-law governed bonds, including one with a maturity date of 27 April 2023, which drove the urgency of the restructuring. Adler incorporated a new English entity which assumed the group's debt and in turn proposed the restructuring plan.

Restructuring plan

The restructuring plan involved:

the subordination of the various series of noteholders to new money creditors as well as to the notes due to mature in 2024 (which was extended to 2025), but otherwise maintaining maturity dates
envisaged that by the end of 2026, the group's business would be wound down and its assets sold to pay all its debts in full.

AHG challenged the plan on grounds that it violated the pari passu principle because it preserved the existing note maturity dates (other than for the 2024 notes) meaning that AHG could be 'worse off' on the eventual sale of the group's assets than in an immediate liquidation (the agreed 'relevant alternative' to the plan) in which all creditors would rank equally.

Decision

There was extensive valuation evidence, including cross-examination of witnesses. Ultimately the Court held that the plan did not infringe the pari passu principle, preferring Adler's expert evidence (whilst acknowledging the inherent uncertainty in valuation evidence) that the noteholders were likely to be paid in full.

Key takeaways

This is a significant and detailed judgment that further develops the case law on restructuring plans, and in particular the use of cross-class cram down.