04 July 2018

Deal Wrap: Paladin restructure

KWM advised Paladin Energy Limited (Paladin) and its administrators KPMG, on Paladin’s complex balance sheet restructure

The seven month administration culminated in a US$700m debt for equity swap through a Deed of Company Arrangement (DOCA) and a court approved s444GA share transfer.

The matter involved a large, multi-disciplinary KWM team across Australia and Hong Kong, involving our Restructuring & Insolvency, Mergers & Acquisitions, debt capital markets and Banking & Finance teams. 

This matter represented showcased the firm’s multi-disciplinary strength and global standing, with the firm providing English law, Hong Kong law and Australian law advice, and co-ordinating the efforts of local counsel in Canada, Namibia, Malawi and Singapore.

Find out more about the Paladin restructuring in the video below, in which Partners Paul Schroder and Tim Klineberg discuss:

KWM’s role on this transaction and the key areas of the firm that were engaged

  • How Paladin’s position as a listed entity, that was to remain listed, added further complexities to the process

  • The significance of the DOCA proposal in this matter 

  • The importance of the court approving the s444GA share transfer

  • How the outcome would be influenced if the safe harbour/ipso facto reforms were in play

  • How the administration process changed things for paladin

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What were the Key Areas of the firm engaged in the Paladin matter?

Paul Schroder: So the Paladin situation is exactly the type of situation that I joined a firm like King & Wood Mallesons to be a part of. Really, you’ve got this international client, this Australian listed company which had the courage to build mining assets in Africa and in Canada, to borrow money from the French Government, to borrow money from Asian investors and we as lawyers are able to go global with them. So we have our Perth mining team helping them with their African mining assets, we have our litigation team in Europe keeping the French Government as a major creditor at bay, our debt capital markets team in Asia negotiating with the bondholders and our restructuring team in Sydney co‑ordinating this major restructuring.

How did Paladin’s position as a listed entity, that was to remain listed, add further complexities to the process?

Paul Schroder: So Paladin was always going to have remain listed because the creditors were going to insist on swapping their debt into equity which they could sell and as a result it had to be on the listed exchange. Paladin itself was listed in a number of exchanges around the world: Australia, Toronto and Namibia and also is debt listed in Singapore so maintaining all these listing during a complicated restructuring was an extreme challenge because even though the equity would have appeared to be worthless at the point in time the company went into administration, its debt was trading on the bond markets and so we were under continuous disclosure obligations all the way through the administration keeping us under extreme pressure to communicate to the market and balance the interest of negotiating very sensitive matters.

How significant was the DOCA proposal in this matter?

Tim Klineberg: Well the bondholders here had very significant exposure to Paladin and their bonds were maturing but the company was not in a position to repay those debts and there was a number of transactional steps required to deal with that and because of the company’s solvency position it was necessary for administration and then out of administration a strategic pre‑planned deed of company arrangement proposal was critical to the company emerging. We were able to work closely with the bondholders and also their advisers to deliver that solution. There were also disputes going on in the background so it was quite an interesting contested matter, it moved quite quickly but the deed of company arrangement proposal was critical to the company emerging from administration unscathed.

Would there be any different outcome if the safe harbour reforms/ ipso facto reforms were in play?

Tim Klineberg: The company spent a lot of time outside of administration dealing with creditor groups in circumstances where its solvency was in question. It had to develop causes of action to deal with those challenges, the directors were under pressure within solvent trading and the safe harbour was not in effect when that was going on but what we found was that our advice didn’t really change. I think with the safe harbour coming in we would have probably given the same advice and I don’t think things would have changed for the directors, they might have felt slightly more comfortable. In relation to ipso facto, it’s a really interesting question as well because there was a contractual trigger in favour of China nuclear in their joint venture agreement that wouldn’t have been operative if ipso facto was in effect so if that contract had been signed after 1 July of this year, 2018, we would have seen that wouldn’t have been a factor in the restructuring where in fact because it was before ipso facto came in, it was before 1 July 2018, it was an enormous factor. Very influential.

Did the administration process change things for Paladin, and how so?

Tim Klineberg: The company was trying to trade outside of administration. It was under a lot of pressure from different creditor groups. It had quite a lot of support from creditors but there was also some issues that it was dealing with, with others and I think that puts directors under quite a lot of pressure whereas the administration procedure takes the directors out of the spotlight and enables things to be more controlled and delivered in a more considered way. So it’s a good platform to negotiate for the company before administration. It was good to put pressure on various creditor groups and when that didn’t work out we had the administration procedure which was a stable environment to negotiate and deliver the deed of company arrangement to restructure this business.

Our national restructuring and insolvency team has deep expertise in leading these types of complex assignments, including restructuring and distressed investment, insolvency procedures and insolvency litigation.

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