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China’s Xinyuan Real Estate and its senior unsecured notes were downgraded to C from CCC by Fitch. The downgrade is on account of Xinyuan’s exchange offer last week for its $229mn 14.2% bonds due October 15, 2021 for new bonds due 2023, which Fitch considers a distressed debt exchange (DDE). Fitch said, “If the proposed exchange offer is successfully consummated, the IDR will be downgraded to ‘RD’ (Restricted Default)”. The rating agency considers the exchange offer to be necessary for Xinyuan to avoid default due to its tight liquidity. Xinyuan had an cash balances of ~RMB 5bn ($780mn) at end-2020, and its ability to access the cash for the bond repayment is uncertain. Fitch adds that the memorandum states that Xinyuan engaged a restructuring adviser and that it may not be able to repay the existing notes if the exchange is unsuccessful. While the new notes contain the same 14.2% coupon, they also have looser terms in including events of default. Bondholders have to tender over 90% of the outstanding principal amount of the existing notes for a valid exchange. Early last month, Xinyuan was downgraded by Fitch to CCC from B-, citing heightened refinancing risk.

In a latest update, holders of $140.1mn, or 61.18% of the $229mn 14.2% 2021s have agreed to the exchange offer, with Xinyuan extending the deadline to October 13, as per IFR. Xinyuan has reduced the minimum denomination of the proposed new bonds to $10,000 from $200,000. Its 14.2% 2021s currently trade at 60.8 cents on the dollar.

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