Vol 13 (2016) - Issue 1

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LDK Solar: A New Dawn in International Restructuring

The importance of cross border judicial co-operation in the restructuring of multinational corporations cannot be overstated; it is one of the essential components for the successful restructuring of a company with an international presence. The recent success story of LDK Solar Co., Ltd ('LDK'), which entered provisional liquidation in the Cayman Islands in February 2014 and involved the restructuring of the LDK group’s non Peoples’ Republic of China ('PRC') debt (also referred to as 'offshore debts'), is a paradigm example of what happens when courts from three countries co-operate, culminating in what is said to be the first judicially approved, multi-jurisdictional debt restructuring of its kind for a PRC based group.

The global market conditions which affected LDK
LDK is a Cayman Islands’ holding company for a group of companies located throughout the world involved in the manufacture and sale of a variety of photovoltaic ('PV') products used in the generation of solar power. With the benefits of lower-cost labour and ready access
to raw materials, virtually all of the group’s manufacturing is undertaken via PRC incorporated companies based at various sites in mainland PRC.
The LDK group expanded its operations into Europe and the US in order to access the global PV markets, extending its operations outside of its main manufacturing base in the PRC and facilitating access to international capital markets.
Between 2011 and 2013, following the introduction of anti-dumping laws in the EU and a general reduction in the availability of government subsidies following the global financial crisis, the solar power industry suffered significant financial challenges with the key issues being the reduction of the price of solar panels and the declining price of polysilicon, a key raw material used to manufacture solar panels.
By the first quarter of 2011 the spot price of polysilicon had fallen from a 2008-high of around USD 500 per kilogram to just over USD 90 per kilogram, before slumping further to just under USD 24 per kilogram by the second quarter of 2012.
At these prices, the cost to the LDK group of producing polysilicon was greater than its selling price. Already overburdened with debt taken on to fund the expansion programs of earlier years, LDK was not able to sustain these operating losses which led to the group scaling back its production of polysilicon, ultimately culminating in the suspension of the manufacture of polysilicon products.

LDK’s debt burden
In addition to borrowings from PRC institutions of approximately USD 2.9 billion, secured against LDK group companies based in the PRC, LDK had offshore debts (non-PRC based lending and security) of USD 1.1 billion. These offshore debts included holders of senior notes issued by LDK ('Senior Notes'), holders of preferred shares issued by LDK Silicon & Chemical Technology Co., Ltd ('LDK Silicon'), a subsidiary of LDK ('Preferred Shareholders') which were guaranteed by LDK, intercompany creditors and unsecured creditors of LDK, made up predominantly of professional advisers.
In mid-2013, it became clear that LDK would have insufficient funds to repay the Senior Notes due in February 2014 and if a consensual restructuring could not be achieved then the results would be disastrous for the group and its stakeholders.
As a result of these financial pressures, and in the lead up to the maturity of the Senior Notes, an informal committee of holders of the Senior Notes was formed to consider the restructuring options available. However, without support from all Senior Note holders, management
recognised that it needed to protect against adverse creditor actions being taken against the LDK group in various jurisdictions. On 27 February 2014, the day prior to the final maturity of the Senior Notes, LDK filed for provisional liquidation before the Grand
Court of the Cayman Islands ('Grand Court') and Eleanor Fisher and Tammy Fu of Zolfo Cooper were appointed as joint provisional liquidators ('JPLs').