Global A&T Electronics bondholders file lawsuit seeking bond swap reversal

HONG KONG Tue Feb 11, 2014 1:38am EST

HONG KONG Feb 11 (Reuters) - Global A&T Electronics (GATE) bondholders including investors such as Blackstone and Farallon have filed a lawsuit against the company seeking the reversal of a debt swap that allowed higher priority to junior noteholders.

The lawsuit was filed by Lowenstein Sandler, a U.S.-based law firm representing nearly half of the bondholders of the pre-swap $625 million outstanding amount of senior bonds due 2019.

The action follows a notice served on GATE last November by investors demanding the nullification of the exchange, which involved more than $500 million of junior notes being swapped for senior notes, resulting in the total outstanding amount on the 2019 notes rising to $1.1 billion.

Distressed debt experts say the swap had helped the company avoid a potential restructuring which could have resulted in dilution of ownership.

The lawsuit was filed in the New York County Supreme Court during U.S. hours on Monday.

Singapore-based GATE is the parent company of UTAC, a semiconductor business that was taken private by Affinity Equity Partners and TPG Capital Partners in a S$2.2 billion ($1.8 billion) leveraged buyout in 2007.

"We have not received a copy of any lawsuit, but we stand by our prior comments that the exchange was in full compliance with all agreements. We may comment further in the event we receive any legal filings," a company spokeswoman said.

Affinity and TPG Capital could not be reached for immediate comment.

GATE's heavy debt burden has already put a strain on its cashflow and Moody's has warned of a downgrade on its Caa1 rating which has a negative outlook.

The agency said chances of a downgrade could rise if the company had to reverse the swap, which would raise the near-term liquidity risk because the junior notes were to mature in 2015 under the original schedule.

Last week, UTAC agreed to buy from Panasonic Corp three chip assembly unit operating plants in Indonesia, Malaysia and Singapore.

Moody's said the deal, with price tag of $116.5 million plus transaction related fees, is credit negative as it "comes at a time when GATE is facing considerable uncertainty arising from an ongoing legal dispute with bondholders."

Following the debt swap in 2013, the bonds due in 2019 had sold off amid worries about higher senior leverage and dilution of collateral.

The bond price tumbled to a low of 68 cents on the dollar from 88 cents before the exchange. They have since recovered to around 86 cents, ahead of the lawsuit.

In recent years, events such as the acquisition of Australia's Nine Entertainment by senior creditors and Affinity's sale of its majority stake in shipping firm Jaya Holdings Ltd., following a restructuring, have served to remind investors they can risk loss of control.

The dispute at GATE festers as Affinity in January closed a $3.8 billion fourth fund, the biggest ever raised for an Asian firm outside Australia.