Government nears deal with lenders to keep Solid Energy alive with taxpayers' contributing up to $155m

A deal restructuring financially stricken Solid Energy, including a contribution of up to $155 million from taxpayers, appears close.

In a statement Finance Minister Bill English and Minister for State Owned Enterprises (SOEs) Tony Ryall said the proposed restructuring gives Solid Energy more time to work through the issues it faces, as it focuses on its core coal business. As of June 30 Solid Energy had $381 million of debt comprising drawn bank facilities net of cash of $286 million and bonds of $95 million.

English and Ryall said the proposal includes restructuring "the bulk" of the company’s bank facilities. It'll issue $100 million in non-voting redeemable preference shares with $75 million to key lenders in exchange for part of the debt owed to them, and $25 million to the Crown in exchange for cash. There'll also be a secured working capital loan of $50 million provided by the Crown, repayable within three years, plus a secured land mortgage of $50 million provided by the Crown, again repayable within three years.

"Ministers have also agreed to a secured standby facility of up to $30 million, provided by the Crown, if required," English and Ryall added. “Holders of the company’s medium term notes (bonds) are being asked to agree to waive some of their rights to enable the company to put the financial restructuring proposal forward to lenders."

The two ministers said a process to formally adopt the proposal was underway and was expected to be complete by the end of October.

English said the Government’s financial statements for the year to June 30 2013, which will be issued on Monday, will include the financial impact of the proposed agreement. This includes the $25 million cash injection and $100 million of loan facilities, plus the $30 million standby facility.

'Will still have sizable debt'

As previously reported by interest.co.nz Solid Energy's banks are Westpac, ASB, ANZ, Bank of Tokyo-Mitsubishi and BNZ. The company also has bonds with a face value of $95 million on issue. Earlier this year Solid Energy declined, even after an Official Information Act request from interest.co.nz, to name its bondholders. However, TSB Bank has emerged as one of them.

A spokeswoman for English said she couldn't say who the bond holders are. In terms of them "waiving rights", this referred to the legal process Solid Energy is working through.

"The main right that note holders are being asked to waive is the right to effectively put the company into default if it enters into an agreement with other creditors to accept a compromise on their debt," English's spokeswoman said. "This is necessary before the company can put the proposal to its lenders."

The balance of the bank debt, other than the $75 million being converted into non-voting redeemable preference shares, remains as it is, the spokeswoman added.

"So the company (Solid Energy) will still have sizable debt."

The restructure comes after English and Ryall announced in February that Solid Energy, which was one of four SOEs the Government had earmarked for partial privatisations, was in talks with its banks over restructuring options. They said Solid Energy had $389 million of debt, and its board was working with Treasury, advisors and its banks with the aim of returning the company to a sustainable financial position.

Debt at $381m at June 30

In its own statement Solid Energy said its board had agreed in principle to the financial restructuring proposal. Solid Energy said as of June 30 its net bank debt and bonds combined stood at $381 million comprising drawn bank facilities net of cash of $286 million and bonds of $95 million.

"The proposal, facilitated by the Treasury, will be formally considered for approval by the banks in the next couple of weeks. Bond holder co-operation will also be sought," Solid Energy said.

Solid Energy chairman Mark Ford said the restructuring would allow the refocused coal mining business to trade its way back to profitability over the next few years. However, this would need to be supported by ongoing cost reductions, cash generation and improvements in the international coal market.

“We believe that the company has a good operating future and we hope that with the continued support of our shareholder and our funders, we can re-establish the company as a major employer and economic contributor in our key coal mining regions," Ford said.

"These communities have been severely hit by the company’s financial misfortunes in the last year, including the loss of more than 700 jobs, and we hope to be in a position to reinvest in our operations when there is a sustained improvement in the market.”

Meanwhile, in his statement Labour’s SOEs spokesperson Clayton Cosgrove said Solid Energy’s restructure was too little, too late and at a cost of up to $155 million to the taxpayer.

“Kiwi taxpayers shouldn’t pay for the Government’s bungling. It has been over a year since Bill English and Tony Ryall announced that Solid Energy was in crisis. Over 700 jobs have been lost, one mine mothballed and nothing achieved in the past 12 months," Cosgrove said.

“Despite today’s announcement Kiwis are still left in the dark on how much the failure of Solid Energy has cost them. National must come clean and tell us the full cost."

Here's the full statement from English and Ryall:

A proposal to financially restructure Solid Energy has been agreed between the Crown, the company and key lenders, Finance Minister Bill English and Minister for State Owned Enterprises Tony Ryall say.

“As we have said previously, ministers were not prepared to expose taxpayers to on-going losses if Solid Energy’s core business was not considered viable,” Mr English says.

“However, we also said that we were prepared to provide support for the company if there was a reasonable chance it could be made viable, and we expected the lenders to also contribute to that recovery,” he says.

Mr Ryall says that although the company still has a lot of work to do, and market conditions remain challenging, the point has now been reached where a financial restructuring proposal can be formalised with Solid Energy’s key lenders.

“The proposed restructuring will give the company more time to work through the issues it faces, as it continues to focus on its core coal business,” Mr Ryall says.

The proposal includes:

· A restructuring of the bulk of the company’s bank facilities.

· The company issuing $100 million in non-voting redeemable preference shares – $75 million to key lenders in exchange for part of the debt owed to them, and $25 million to the Crown in exchange for cash.

· A secured working capital loan of $50 million provided by the Crown, repayable within three years.

· A secured land mortgage of $50 million provided by the Crown, repayable within three years.

Ministers have also agreed to a secured standby facility of up to $30 million, provided by the Crown, if required.

“Holders of the company’s medium term notes are being asked to agree to waive some of their rights to enable the company to put the financial restructuring proposal forward to lenders,” Mr Ryall says.

“The process to formally adopt the proposal is now underway and is expected to be complete by the end of the month.”

Mr English says the Government’s financial statements for the year to June 30 2013, to be issued next Monday, will include the financial impact of the proposed agreement, including the $25 million cash injection and $100 million of loan facilities and the $30 million standby facility.

“After many months of complex discussions between the Crown, the company and its key lenders we welcome this next step to move the company forward,” Mr English says.

And here's Clayton Cosgrove's statement:

Solid Energy’s restructure is too little, too late and comes at a cost of up to $155 million to the taxpayer, says Labour’s SOEs spokesperson Clayton Cosgrove. “Kiwi taxpayers shouldn’t pay for the Government’s bungling.

It has been over a year since Bill English and Tony Ryall announced that Solid Energy was in crisis. Over 700 jobs have been lost, one mine mothballed and nothing achieved in the past 12 months.

“Despite today’s announcement Kiwis are still left in the dark on how much the failure of Solid Energy has cost them. National must come clean and tell us the full cost.

“The truth is Solid Energy was an export-award winning company under Labour. National has turned it into a basket case that has to beg for help.

“National was warned time and again that Solid Energy was in trouble, but ministers refused to listen and took no action. Their hands-off approach meant they completely ignored the warning signs.

“National demanded higher dividends from Solid Energy and told the company to ramp up its debt. This was despite warnings that the coal price was set to drop. The plan set the company up for failure.

“The Deloitte report into Crown monitoring of Solid Energy shows Bill English and his Treasury should have acted but did nothing. The board could have been sacked. The Government could have intervened. They didn’t, instead ministers were politically and commercially negligent.

“The result of this incompetence is that almost 700 people have lost their jobs. Now all New Zealanders are left carrying the can,” says Clayton Cosgrove.