Harneys and Davis Polk advise on Luckin debt revamp

Harneys and Davis Polk advise on Luckin debt revamp-L

Luckin Coffee has completed two debt restructuring plans, ending the cross-border bankruptcy proceedings under chapter 15 of title 11 of the US Code. Davis Polk acted as legal counsel and Harneys advised on Cayman Islands law.

The plans included a USD460 million senior note with holders receiving a total of USD320 million in cash plus new bonds after the restructuring and a USD175 million settlement for a shareholder class-action lawsuit.

The actions were approved by the Grand Court of Cayman Islands and the US Bankruptcy Court for the Southern District of New York.

“This was an innovative and complex restructuring given that Luckin Coffee was balance-sheet solvent, but had difficulties around repayment due to illiquid onshore assets and foreign exchange restrictions in the PRC preventing the transfer of sufficient funds offshore,” Harneys said in an announcement.

The two firms negotiated with the US Securities and Exchange Commission, the State Administration of Foreign Exchange in the PRC and third-party investors concerning all offshore aspects and provided advice on dealing with management fraud.

The Harneys team was led by Hong Kong-based partner and head of global restructuring practice Chai Ridgers and Nick Hoffman, a managing partner and head of the litigation, insolvency and restructuring group in the Cayman Islands, with support from partner Jayson Woods and senior associates Katherine McMenamin and Anya Allen.

Two partners of Harneys’ Hong Kong’s global banking and finance and corporate groups, Paul Sephton and Raymond Ng, also advised on the restructuring with assistance from senior associate Oswald Kan and senior legal manager Nicholas Fong. Mirza Manraj, a counsel and Asia regulatory practice head, advised on financial crime and regulatory investigation matters.

Luckin Coffee is seen as the biggest competitor to Starbucks in China. The company was delisted from Nasdaq in 2020 after it was revealed it had fabricated USD310 million in revenue, but its depositary receipts continued to trade over the counter.

Luckin denied a report in the South China Morning Post that it planned to list in Hong Kong. The company issued a statement saying it will “remain committed to the US capital markets”.