Cross-Border Restructuring Case Study: syncreon

Jones Day recently represented a group of secured term loan and revolver lenders ("Ad Hoc Group") in the global restructuring of syncreon. Throughout the restructuring process, Jones Day utilized its worldwide network of offices to seamlessly promote the interests of the Ad Hoc Group and achieve a smooth and successfully restructuring of syncreon.

In the beginning of 2019, prior to the commencement of restructuring negotiations, syncreon had approximately $985 million in funded debt, in the following capital structure:

• $680 million in secured term / revolving loan debt ("Secured Loans")
• $80 million in secured ABL debt ("ABL Debt")
• $225 million in unsecured notes ("Notes")

Given syncreon's multicountry organizational structure, the Secured Loans and Notes were issued and guaranteed by entities in a multitude of countries throughout the world, including the United States, the United Kingdom, the Netherlands, Canada, Germany, Ireland, Hungary, Poland, and the Isle of Man.

In early 2019, the Ad Hoc Group formed to assess syncreon's financial position amid mounting liquidity pressure. Shortly after organizing, the Ad Hoc Group agreed to provide syncreon with a short-term injection of liquidity, and thereafter began negotiating a comprehensive balance sheet restructuring with syncreon and other key stakeholders.

After months of hard-fought negotiation, the parties agreed upon the following economic deal:

1. Secured Loan lenders would receive:
   1. 85.5% of the reorganized equity (assuming timely joinder to the Restructuring Support Agreement ("RSA"));
   2. $225 million in new second-out term loans; and 
   3. The opportunity to participate in a portion of a $125.5 million new-money, secured, first-out term loan ("FOTL"). 
2. Noteholders would receive:
   1. 7% of the reorganized equity (assuming timely RSA joinder); and 
   2. Warrants to acquire 10% of the reorganized equity. In addition, separate portions of the reorganized equity were set aside for parties that either (i)  made concessions and/or amendments in connection with certain of syncreon's existing indebtedness; and/or (ii) provided a backstop with respect to the FOTL. 
3. Syncreon's other funded debt (including the $80 million ABL Debt) would be consensually refinanced.

In parallel with the negotiation of this economic deal, Jones Day worked with syncreon's (and other stakeholders') advisors to determine the proper implementation mechanism for the restructuring. In doing so, Jones Day analyzed numerous complex legal issues and potential tax complications, many of which concerned syncreon's cross-border operational structure. In resolving these issues, Jones Day relied heavily on many of its offices around the world—including its offices in New York, London, and Amsterdam.

One of the primary implementation issues concerned the fact that the Secured Loans and Notes were guaranteed by multiple entities in various countries. Given this complex, cross-border obligor structure, careful consideration had to be given to which country's reorganization laws would provide the greatest certainty of a successful restructuring.

Two of the key reorganization proceedings analyzed by Jones Day were a U.S. chapter 11 proceeding and an English scheme of arrangement. Although both processes are similar in that both can be used to implement a balance sheet restructuring, they are not identical. In this case, the parties ultimately determined that an English scheme was the best approach, with chapter 15 recognition in the United States and CCAA recognition in Canada.

One of the most important considerations in that analysis was the fact that, pursuant to the Recast Judgments Regulation (Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast)), countries in the European Union will automatically recognize a scheme sanctioned by an English court. This was important because certain entities that both guaranteed syncreon's funded debt, and generated significant revenue, were organized in various E.U. countries. In contrast to a scheme, a U.S. chapter 11 proceeding would not benefit from any such automatic recognition.

An additional restructuring consideration was syncreon's need to obtain a release of the guarantors on the Secured Loans and Notes in order to give full effect to the schemes. This is now a regular feature of schemes.  See Re Lehman Brother International (Europe) (in administration) (No 2) [2010] Bus LR 489 and Re Noble Group Ltd [2018] EWHC 3092 (Ch). Unlike chapter 11 (where, absent special circumstances, a party benefitting from a release must be a debtor), an English scheme can be used to release guarantees even if the guarantor is not a party to the scheme. Jones Day also considered it important that an English scheme would potentially mitigate some of the negative effects of formal insolvency proceedings (e.g., negative press; the possibility of attempted termination of customer and supplier contracts), given that an English scheme is not technically a formal insolvency proceeding.

Once it had been determined that the English scheme was the most suitable restructuring tool, the parties analyzed how that process could be effectuated, including whether an English court would have appropriate jurisdiction. Jurisdiction was a significant consideration given that, among other things, the debt that would be subject to the scheme (i.e., the Secured Loans and Notes) was governed by New York law. This issue was addressed by amending the Secured Loan and Notes documentation to change the governing law from New York law to English law.

In addition to these restructuring issues, Jones Day also relied on lawyers in other practices to deal with non-restructuring issues (such as corporate, tax, and finance issues). For instance, Jones Day relied on corporate and tax lawyers in its U.S. and Amsterdam offices to ensure that syncreon's intragroup reorganization, which included the incorporation of a new Dutch holding company, was done in the most efficient manner possible. Further, in devising an efficient tax structure for syncreon's English scheme, Jones Day's U.S. and Dutch tax lawyers navigated a number of difficult tax issues, including analyzing cross-border aspects of recent U.S. tax reform legislation.

Jones Day also relied heavily on its offices in London, the United States, Amsterdam, Frankfurt, Madrid, Sydney, Sao Paulo, and Mexico City to address issues in connection with the Ad Hoc Group's provision of additional financing to syncreon, which was secured by new collateral located in countries throughout the world. Jones Day relied on lawyers in these offices to navigate local law and ensure that the Ad Hoc Group received the full benefit of its negotiated security package.

Ultimately, syncreon's restructuring was supported by approximately 99% of the Secured Loan lenders and Noteholders. The schemes were sanctioned by the English court in early September 2019, and were recognized in the United States and Canada shortly thereafter. The syncreon restructuring was a particular accomplishment, given that it is believed to be the first time an English scheme has been used to restructure debt issued by a U.S.-based group, and the first time that a Canadian court has granted CCAA recognition to an English scheme.

In negotiating and implementing this landmark cross-border restructuring, Jones Day benefited immensely from its global network of offices. Given where we are in the credit cycle, Jones Day anticipates an increasing number of situations that will need to be balance sheet restructured on a cross-border basis. In order to achieve a successful outcome, it will be imperative for interested parties to utilize a law firm with a multidisciplinary cross-jurisdictional team of lawyers, such as Jones Day.