JOHANNESBURG – After postponing the release of full year financials for failed lender African Bank, due out on Thursday, curator Tom Winterboer has issued a statement detailing the restructure of the Good Bank, which he says is supported by debt holders.
As expected, senior unsecured debt holders will exchange 90% of their claims in African Bank for new unsecured notes in the restructured Good Bank. The maturity of these claims will be extended for 24 months beyond the completion of the restructuring, which Winterboer hopes to finalise by no later than the end of September.
The 10% haircut taken by senior unsecured debt holders will be exchanged for a new stub debt instrument in African Bank, which will be subordinated only to the claims of the South African Reserve Bank (Sarb) in terms of the loan funding it provides to African Bank.
Stub debt is essentially debt that has, as a result of being formed from a distressed company, reduced in value. Its potential value is based on the future success of the issuer, in this case African Bank.
“The nominal value of the stub instrument is equal to one ninth of the nominal value of the 90% claim against Good Bank, it can only be serviced as and when the Curator decides that he has built up sufficient cash in the Residual Bank to pay a portion of the stub claim – in this sense it is a “pay as you can” instrument,” Gavin Jones, executive for funding, liability management and Treasury at African Bank explained via an emailed response.
Money market funds are part of the senior unsecured creditor pool, and so these investments will be treated in the same way as all other senior unsecured credit. This implies a 10% haircut of capital as of August 10 2014, interest on the 90% portion for the curatorship period paid out 24 months after the restructuring is complete and a senior stub instrument for the balance.
Subordinated debt holders get something too
Subordinated debt holders can choose to either participate in the restructured Good Bank as equity holders or have just more than a third of their R4.4 billion claims settled by exchanging these claims for alternative debt instruments.
It’s unlikely that many of the subordinated debt holders will be able to become equity holders in Good Bank, since these holdings are in bond funds where mandates do not allow for equity investments.
Even if a fund’s mandate did allow for this to happen, it would mean taking a view on the equity of Good Bank, which may be risky considering that the outcome and exact format of Good Bank is still uncertain at this stage.
As such, most subordinated debt holders have the option to exchange a R1.65 billion portion of their claim for new subordinated ten-year Tier II instruments in Good Bank, which are non-redeemable for five years.
The remaining R2.75 billion portion will be exchanged for subordinated stub debt instruments. These instruments will rank behind claims of the Sarb, senior stub claims and other subordinated creditors.
‘A positive deal’
Bronwyn Blood, portfolio manager at Cadiz Asset Management, which is a holder of both senior and subordinated debt, said it’s positive that there is finally a “deal on the table” that both the senior and subordinated unsecured debt holder committees support.
“The best piece of news is the recovery on the subordinated debt, where subordinated debt holders will receive 37.5% of their outstanding R4.4 billion,” Blood said.
Not expecting to get anything back on subordinated holdings, most fund managers would have written the value of this debt down to zero, so this is positive news for them.
Blood said the 90% exchange on the senior debt is as expected. That the 10% haircut has effectively been exchanged for a new instrument of equal value – subordinated to the claims of the Sarb – means there is potential for some claw back on the haircut.
“This is a residual claim though, so the prudent approach would be to not give it much value,” Blood noted.
Relisting to take years
“As part of the settlement offers, senior funders and subordinated funders will be required to agree to have no further claims against African Bank (other than the stub claims issued to them as part of the Good Bank Restructuring Proposal),” African Bank said.
Shareholders of African Bank equity will have to wait for the bank to relist before their fate is made known. “It is appropriate for the new, restructured African Bank to trade for a number of years in order to build up a track record which will be acceptable to potential investors. We think that may take several years,” Jones said.