September 13, 2017 / 4:52 AM / a year ago

Fitch: Bondholder Consent for Restructuring Key to Global A&T's Rating

(The following statement was released by the rating agency) SINGAPORE, September 13 (Fitch) The ratings on Singapore-based Global A&T Electronics Ltd (GATE), at Restricted Default (RD), will hinge on the outcome of a proposed debt restructuring, Fitch Ratings says. Should the proposed restructuring go ahead, we would re-rate GATE based on its new credit profile, reflecting the final terms and conditions of the debt restructure We would expect the Long-Term Issuer Default Rating (IDR) - if the debt restructuring succeeds - to be in the "highly speculative grade" category in light of GATE's weak business profile, despite an improvement in its financial profile. GATE's rating will remain constrained by its position as a small participant in the USD25 billion outsourced semiconductor assembly and test (OSAT) industry, with only a 4% revenue market share. Its scale, relatively weak financial capacity and technological capability hamper the ability to invest in advanced packaging technologies. The debt restructuring plan, which the company announced on 11 September 2017, represents a distressed debt exchange (DDE) according to Fitch Ratings' criteria. The plan comprises an offer to bondholders to exchange their current investment for new debt and, in some cases, equity. In general, we would lower an IDR to 'C' on announcement of a DDE proposal and downgrade to 'RD' when the DDE is completed. However, we had on 1 September 2017 downgraded GATE to 'RD' after the expiry of the grace period following non-payment of a bond coupon due 1 August 2017. Our ratings will not change until the DDE or other restructuring to establish a sustainable capital structure is completed, in which case the ratings will be upgraded. Alternatively, if the company enters into bankruptcy proceedings, administration, receivership, liquidation or other formal winding-up procedures, or otherwise ceases business, our ratings would be downgraded to 'D'. GATE has proposed to issue a new USD665 million 7.75% five-year secured note in part exchange for the USD1.1 billion note due in February 2019. The new note would start accruing interest from consummation of restructuring or 1 January 2018, whichever is earlier. GATE's private equity sponsor will reorganise the company with contribution of United Manufacturing Services Limited (UMS). UMS is a 100% subsidiary of GATE's parent, United Test & Assembly Center Ltd. UMS provides semiconductor services to Panasonic Corporation (BBB/Stable), backed by an agreement that expires in June 2019. According to the debt restructuring proposal, holders of the initial USD625 million tranche of the February 2019 bond - issued in February 2013 - will receive USD540 million of the new secured notes. In addition holders of this initial tranche, who are represented by law firm Lowenstein Sandler LLP and a party to an on-going legal dispute against GATE, will also receive USD15 million in new secured notes and USD5 million in cash. Separately, holders of the second tranche of the February 2019 bond (USD502 million, issued in November 2013) will receive USD110 million in new secured notes, along with 30% of the common equity of the reorganised GATE. This equity interest will be subject to dilution by the reorganised GATE's management equity incentive plan. The consummation of the debt restructuring, including the contribution of the UMS business, is subject to the dismissal of the ongoing legal dispute. So far, GATE has obtained approval for the debt restructuring from holders representing about 44% of the initial tranche of bonds and holders of 83% of the second tranche of bonds. We understand that GATE would need approval from holders of at least 75% of the bonds in each tranche to complete the restructuring process as a scheme of arrangement in Singapore. However, the company may be able to complete debt restructuring with less than 75% under certain circumstances pursuant to US or Singapore laws. The restructuring is also subject to execution of definitive documentation, including a new shareholder agreement, and receipt of any necessary governmental or court approvals under applicable law. Contact: Nitin Soni Director +65 6796 7235 Fitch Ratings Singapore Pte Ltd. 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