DLA Piper secures landmark restructuring plan decision for Fürst group

DLA Piper has advised Project Lietzenburger Straße Holdco Sarl (Holdco) on the successful completion of its Part 26A restructuring plan (the Plan).

Following the Court of Appeal’s overturning of Adler, the case now stands as the first successful use of the flexible Part 26A restructuring plan process for a German real estate development asset, with more than EUR1 billion of German law governed debt instruments restructured pursuant to the Plan.

The mixed use development project, Fürst, based in Berlin, was acquired in 2021 by Aggregate Holdings, who will retain a minority equity stake in the post restructured group following the restructuring. The Fürst project is one of the largest development sites in Europe.

The Plan comes hot on the heels of the judgment of the Court of Appeal overturning the first instance decision of Mr Justice Leech in Adler as well as the contested restructuring plan of the McDermott Group (which successfully reached sanction on 27 February 2024).

The Plan was needed following escalating financial distress and cost overruns - a feature common to many real estate asset and investment companies across Europe, including the Fürst project, which have been impacted by rising borrowing costs and lower property valuations.

Following the completion of the Plan, which was approved by almost all (97.3%) of its senior creditors, Holdco and the Fürst Group will benefit from the following Plan arrangements and be able to resume its project development on Berlin’s prime Kurfürstendamm boulevard:

• The entry into a new EUR190 million super senior new money facility, provided by the Fürst Group’s existing financial creditors and backstopped by the Fürst Group’s largest financial creditors, with participating creditors benefiting from elevation rights for a portion of their existing debt;
• The extension of the Fürst Group’s financial debt maturities to at least November 2025 (with further support and flexibility for additional extensions agreed with its participating creditors);
• Access to the Fürst Group’s retained cash (in excess of EUR100 million) which, without a reset and extension of the debt maturities, had remain trapped and unavailable to fund the Development since at least August 2023; and
• The balance of the majority of the shares in the Fürst Group being placed into fresh ownership with neutral shareholders who will hold the shares through to the completion of the project; and
• The stabilisation of Holdco and the Fürst Group's balance sheet via the above arrangements together with cancellation of a substantial portion of “out of the money” junior debt instruments in the total amount of approx. EUR250 million as part of the compromises affected by the Fürst Restructuring Plan process.

As part of the restructuring process, Holdco effected a “COMI Shift” to relocate its centre of main interests to the UK to provide access to the flexible and powerful Part 26A Restructuring Plan process. The judge heard extensive arguments on the desirability of forum shopping for these purposes and whether the steps taken lacked the necessary permanence. In sanctioning the Plan, the Court found that the steps taken by Holdco in effecting its COMI Shift were robust, and sufficient to provide jurisdiction for the UK Restructuring Plan process, and such forum shopping had a proper rational commercial and legal basis. A COMI Shift provides an alternative basis for overseas companies seeking to create jurisdiction versus other mechanisms used in prior cases (for example, issuer substitution mechanisms or incorporation of substitute or co-obligors, the feasibility of which was left open in the recent landmark ruling of the Court of Appeal in Adler).

The sanction of the Plan follows a further supplemental sanction hearing after the original sanction hearing which took place between 2-7 February (inclusive). Following Smile Telecom, and on the basis of the findings of fact at the sanction hearing, Mr Justice Richards concluded that the Senior Tier 2 Creditors and Junior Creditors were out of the money and had “no genuine economic interest”. This was based on valuation evidence presented exclusively by the Plan Company. Apart from the need to convene a fresh meeting of the Senior Creditors to address a timing issue arising from Court of Appeal's decision in Adler, the Court would have sanctioned the Plan and crammed down the subordinated creditors. The Plan is therefore only the 2nd example of the use of the court's power to disenfranchise “out of the money” junior creditors pursuant to section 901C(4) and 901F of the Companies Act 2006 and the largest quantum of such disenfranchisement to date . This provides an effective alternative to the cross class cramdown provisions and highlights the importance of value and valuation evidence.

The DLA Piper team was led by partner David Manson, who specializes in restructuring plans, cross border restructurings and is co-chair of DLA Piper’s special situations practice. He was supported by a cross-jurisdictional and cross-discipline team of partners, legal directors, counsel, senior associates, associates and trainees spanning the UK, Germany, and Luxembourg.

David Manson said: “I am delighted to have been able to support the Fürst Group with their cross border restructuring transaction alongside our integrated team providing expertise and deal support across the UK, Luxembourg and Germany. The positive outcome yet again demonstrates the flexibility and power of the Super Scheme process to help debtors and creditors alike effect corporate rescues and enhance value for all stakeholders.”

Further detailed commentary on this landmark case from the DLA Piper team will follow in due course.

Holdco was also advised by financial advisor FTI Consulting. The largest creditors of Holdco comprising Fidera and AXA were advised by Sullivan & Cromwell and Greenberg Traurig.