• National Carrier confident of reaching settlement with broader bondholder base
• Discussions with Lazard ongoing following termination of talks with Ad Hoc Group
• Court enjoining order averts risk of winding-up petition
• Comprehensive restructuring proposal still on table
• $ 60 m cash tender and bond exchange offer part of initial plan

SriLankan Airlines remains confident of reaching a settlement with the bondholders of its $ 175 million, 7% Government-guaranteed bonds, despite the recent much-publicised announcement of the termination of restrictive discussions with the Ad Hoc Group of Bondholders. 

Speaking to The Sunday Morning Business, SriLankan Airlines Chairman Sarath Ganegoda revealed that notwithstanding the announcement of the termination of restructuring discussions between SriLankan and the Ad Hoc Group of Bondholders, SriLankan’s legal adviser Lazard would continue to engage with the bondholders in order to reach a settlement.

“Lazard is handling it and these discussions are still ongoing,” he stated.

Responding to a query by The Sunday Morning Business, Ganegoda further revealed that Lazard would be engaging not only with the Ad Hoc Group of Bondholders but with the broader bondholder base as well, in pursuit of a comprehensive and equitable resolution.

Commenting on the risk that existed previously of a winding-up application being instituted against SriLankan Airlines by bondholders due to non-payment under its bonds, he stated that such a risk had now been effectively negated following the issuance of an enjoining order by the Colombo Commercial High Court.

Ganegoda further stated that they remained optimistic about reaching a consensual settlement with the bondholders on the proposed restructuring plan prior to the conclusion of the local proceedings.

While he declined to disclose any further specifics and was unable to provide a definitive timeline, he affirmed that efforts were underway to reach a settlement with the bondholders at the earliest possible opportunity.

By way of a disclosure dated 4 August to the Singapore Exchange, SriLankan Airlines and the Government of Sri Lanka announced that restricted discussions had been held between 28 July and 1 August with six members of the Ad Hoc Group of Bondholders. 

This group collectively represented in excess of 50% of the aggregate outstanding amount of SriLankan Airlines’ $ 170 million Government-guaranteed bond due in June 2024, in respect of the restructuring of the said bond series. 

During the course of the restricted discussion, SriLankan had submitted an initial restructuring proposal, to which the Ad Hoc Group of Bondholders responded with a counterproposal. 

Subsequent thereto, SriLankan Airlines, together with its financial and legal advisers Lazard and Norton Rose Fulbright, in coordination with the Government of Sri Lanka, had collectively concluded that the gap between the proposal and the counterproposal was too substantial, and therefore, parties had mutually agreed to terminate the restricted discussions.

According to the disclosure, Sri Lanka’s restructuring proposal involved a cash tender and/or an offer to exchange their bonds for new bonds issued by the Sri Lankan Government under its 2028 $ 1.20 billion 4% bond series.

According to the information published, the total cash tender offer will be capped at $ 60 million and will be operated through a reverse Dutch auction, where repurchase prices will be capped at 80% of the bondholders’ total claim value (principal, accrued interest, and past due interest of SriLankan’s bond). 

While the exchange offer will compensate bondholders $ 0.80 for every $ 1 of their total claim if they participate voluntarily or if the Government manages to trigger the Collective Action Clauses, the remaining bondholders will be forced to accept $ 0.80 for every $ 1 of their total claim. 

Conversely, the bondholder group’s counterproposal proposed an exchange offer whereby bondholders would be compensated for the full outstanding principal of their existing bonds through the issuance of new bonds by the Sri Lankan Government under its 2028 $ 1.20 billion 4.00% bond series. 

In addition, they also sought payment in cash of all accrued and unpaid interest (including default interest) on the bonds up to but excluding the completion date and an early bird consent fee equivalent to 3% of the outstanding principal amount.