Super senior security for new money in OHADA restructurings
At the current stage in the mining cycle, a number of African projects might face the prospect of financial difficulties and, potentially, the need to engage their creditors with a view to restructuring their debt packages. Those located in the 17 OHADA jurisdictions in West and Central Africa have a new tool at their disposal: the possibility of a super senior position for creditors providing new money.
The new OHADA uniform act on insolvency procedures (Acte uniforme portant organisation des procédures collectives d’apurement du passif) has introduced the ability for providers of new debt to a struggling company to recover that money on super senior basis – ahead of existing secured creditors – if that company goes into liquidation, in an effort to ensure the survival of the project company.
There are, of course, conditions. The new money must be provided on an agreed basis under one of the procedures aimed at rescuing companies which are in serious financial difficulties (the règlement préventif procedure) or which are in payment default (the redressement judiciaire procedure).
The super senior position can also arise under the conciliation procedure, which was introduced by the new OHADA act and is reserved for companies with actual or prospective difficulties but which are not yet in payment default. Its objective is a workout agreement between the debtor company and its “main creditors”. Unlike the règlement préventif and redressement judiciaire regimes, the conciliation process does not require the borrower to submit a full draft workout agreement. It can therefore be initiated earlier, and on a potentially less formal basis, than the lenders to many mining projects may have previously envisaged.
Lenders generally should not be unduly concerned by the risks these developments pose to their existing financing arrangements, provided they have a well-documented finance and intercreditor package, covering the relationship between the main creditors of the company and placing appropriate restrictions on new debt and security.
Furthermore, the new OHADA act protects dissenting minority lenders by only allowing a super senior position in the case of conciliation or règlement préventif if that position does not prejudice the interests of the creditors who are not party to the workout agreement. That will provide additional comfort if there is any uncertainty over whether the typical intercreditor right of any secured lender (including a dissenting minority lender) to block amendments to the security documents would apply to the creation of the super senior position.
Of course, it is possible that the super senior position for new money may be the outcome which is actually desired by lenders in any given workout scenario. In that case, the new OHADA act avoids the documentation burden which could otherwise be necessary, to put in place new security and ensure that it effectively has a first-ranking position through security sharing arrangements.
There is also the possibility that the super senior position (arising by virtue of a provision of law and not under a specific security document) might not be subject to the sometimes onerous security registration charges in certain jurisdictions – a welcome saving for a borrower already in difficulty. That approach will depend on local conditions, however, and we will see whether it is possible in practice, as parties seek to make use of the new OHADA act.