High Street GRP Ltd has recently issued a brochure which it claims is a fair deal mapping a pathway out of its current financial difficulties. The key elements of its rescue plan are to be found at the back of the brochure. Here it is in full with our comments.
The board has successfully delivered funding solutions and a robust business model that enables the Group to grow and thrive over the coming years.
[SOS Comment: Not true. The company is in default on many loan contracts and it admits that if this proposal is not voted through it will have to undertake a ‘Going Concern’ review. There is nothing in the proposal which proves the organisation will be able to survive, let alone thrive].
The launch of the PLC and the implementation of strong corporate governance is geared towards a stock market listing at the earliest opportunity.
[SOS Comment: No institutional investor, bank or financing organisation is going to risk investing its capital in a group where the accounts were two years overdue, where those accounts have not been audited (which is a legal requirement), and where the auditor has resigned [LINK] stating that High Street GRP was unable or unwilling to produce evidence to support the claims made in the accounts. The 2019 accounts have still not been filed and are now 5 months overdue. It would be very unusual for any company to achieve a stock market listing and a successful refinancing under these circumstances].
However, we have one remaining significant issue that is having an impact on our ability to deliver the business plan. The 7 Year Loan Note has an “Early Redemption” clause that enables investors to redeem their Loan Note with just 30 days’ notice.
Unfortunately, the early redemptions are impeding the company’s ability to move forward and secure a sustainable and profitable future. It is imperative that the directors are able to operate with secure cash flow to ensure the delivery of the Group’s business plan.
[SOS comment: In other words, the company doesn’t have enough money to pay the people who are entitled to be repaid, despite them being small investors when compared to the senior debt].
BINDING CONDITIONS TO THE PROPOSAL
Binding Conditions to the Proposal (the “Binding Conditions”).
Loan Note Holders will be asked to approve the following resolutions which amend their rights with respect to the Note:
Restriction on a Loan Noteholder or the Security Trustee from petitioning for redemption or taking any other acceleration, early redemption or enforcement action against the Issuer, the Guarantors, or in respect of the Loan Note Assets until the end of the terms of the Loan Note.
Irrevocably rescinding any redemption notices issued to date.
Waiver of all existing events of default under the Note.
[SOS Comment: WOW – that’s absolutely shocking. High Street GRP Ltd is effectively seeking to remove all investor rights in one fell swoop. Those investors who are entitled to the immediate return of their capital will be prevented from claiming it until August 2025. The Security Trustee and none of the investors will be allowed to take any form of action to recover any money until August 2025. The proposal covers not only the SPV company which borrowed the money from investors, but also the Guarantor company. The Group is also seeking to remove all existing Events of Default. Here is a list of the Events Of Default copied from a standard Loan Note Contract for which the Guarantor is High Street GRP:
HSG Loan Note Contracts_Events of Default
If this is voted through, the Borrower (the High Street GRP company) can immediately cease all interest payments to investors, will not be held liable for any untrue, incorrect or misleading statements from before the investment was made up to the present day, will be able to prevent any investor recovery action even if the company declares itself to be insolvent, and can enter into agreements with new lenders which could significantly worsen the financial position of existing investors. The company can even cease its operations and there would be nothing investors can do until August 2025.
Of course, this assumes that the proposal made by High Street GRP is enforceable and will stand up in court if challenged. It is imperative that investors take legal advice. We know of many investors who have already requested the repayment of their capital in accordance with the terms of the Loan Note Contract. We believe the proposal has been made to frustrate their efforts to recover their money].
Consequences of Not Voting in Favour of the Proposal
Should the support from the Loan Noteholders not be forthcoming, the board of directors will have no choice but to undertake a “Going Concern” review of the business. The board cannot stress strongly enough the importance of ensuring stable cash flow to enable delivery of these projects
[SOS Comment: High Street GRP has had a full year to get its accounts in order AND to undertake a ‘Going Concern’ review of the business. Both should have been done BEFORE putting a restructuring proposal to investors. They haven’t been done].
SECURITY POSITION OF THE NOTE
The security position remains in place but it is further enhanced by the creation of High Street Group PLC which will be taking all future projects forward.
[SOS Comment: How ? What does the ‘Security Trustee’ ( Castle Trust and Management Services [LINK] ) say about the proposal ? As usual they have said nothing].
The current PRS business (High Street Residential), projects, special purpose vehicles, assets and all of its employees will be transferred into the new PLC by the end of 2021.
High Street Group PLC
The success of High Street Group PRS projects has attracted interest from investors and stimulated a pipeline of opportunities for future growth. Within these opportunities is a demand for greater governance and more structured control
As a PLC business there is much stronger Corporate Governance.
Two non-executive directors, Andrew Marsh, who is the Chair of the Board, and Rachel Turnbull, have been appointed to the PLC board. Both have considerable experience in governance, investments, and finance.
This significant shift in structure will empower investors and Loan Noteholders with improved reporting and governance and also helps to attract and retain corporate investors into the business.
[SOS Comment: High Street GRP should start by ensuring that its historical accounts are properly audited. That is the first step in providing stronger Corporate Governance. It has had plenty of time to arrange that, but the Group has always avoided independent scrutiny of its financial dealings].
High Street Group will continue to provide a corporate guarantee to Loan Noteholders.
High Street Group PLC will provide an additional guarantee for any shortfall to Loan Noteholders that the Group does not deliver for whatever reason.
[SOS Comment: A corporate guarantee is worth nothing if these companies are insolvent and unable to pay their existing debts. What would give investors more reassurance are personal guarantees from the directors. If they have confidence in the business they would give personal guarantees, not worthless corporate guarantees].
LEGAL GUIDE TO THE LOAN NOTEHOLDERS
Together with this document you will receive notice of a meeting for Loan Noteholders where a vote to pass a Special Resolution to the terms of their Loan Notes will be undertaken. The purpose of each of the Loan Noteholders’ vote is for the Issuer to propose that Loan Noteholders approve, by way of a Special Resolution, amendments to each of the relevant loan note instruments to give effect to the Proposal and approving the Binding Conditions. For a Special Resolution to be passed, it requires the approval of not less than 75% of Loan Note Holders (or their proxies) at a meeting to be held at the Sea Hotel, South Shields on the 10th of May at 10:00. [SOS Comment: the date has been pushed back].
The notice of the meeting will contain instructions on voting personally or by proxy, and will attach the form of supplemental or amended and restated Loan Note Instrument, giving effect to the Proposal, that will become effective if this Proposal is approved by the Loan Noteholders by way of Special Resolution.
Should you have any queries, please do not hesitate to contact our Customer Care team on email@example.com or call 0191 432 7915.
The Loan Noteholders should note the content and terms of this Proposal are confidential and the information provided regarding the Group’s financial affairs are confidential. Accordingly, the information should not be disclosed to any person other than their professional advisors as required in the course of duty to consider the same.
[SOS Comment: We haven’t revealed any of the unaudited ‘Group’s financial affairs’ or the questionable estimated future revenues. The financial statements are suspect due to the lack of independent verification. We’ve chosen instead to highlight what voting for this proposal would mean for ordinary investors].
Independent Financial and Legal Advice
We recommend that Loan Noteholders take both independent financial and legal advice regarding the Proposal.
[SOS Comment: Well, a statement we can finally agree with although the company is not giving them enough time].
INVESTORS MUST JOIN TOGETHER AND TAKE INDEPENDENT FINANCIAL AND LEGAL ADVICE. IN THE MEANTIME, INVESTORS SHOULD WRITE TO THE SECURITY TRUSTEE REQUESTING AN ADJOURNMENT TO THE PROPOSED MEETING UNTIL THE GROUP’S ACCOUNTS HAVE BEEN INDEPENDENTLY AUDITED. THIS WILL ALLOW INVESTORS’ FINANCIAL AND LEGAL ADVISERS THE NECESSARY TIME TO UNDERTAKE A THOROUGH REVIEW.
It took High Street GRP more than 3 years to file its 2018 accounts so it cannot complain if investors ask for a much shorter period to be able to undertake a proper review of the proposal. It is time for the Security Trustee to step up and prove that it’s not in bed with High Street GRP. Castle Trust and Management Services Ltd should be informing High Street GRP that it needs the accounts to be signed off by an independent auditor].
We can confirm that it is still the intention of our clients to pursue actions to recover their investments. They oppose the attempts of High Street GRP to deprive them of their contractual rights.
To view a previous article on High Street Group click here [LINK].
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