Question 3. Restructuring Bulong's Project Debt Project summary Preston Resources submitted its scheme of arrangement to the Supreme Court of Western Australia on April 21, 2002. The scheme contained a restructuring plan for the secured debt of the company's principal subsidiary, Bulong Operations Pty. Ltd. (BOP). BOP's indebtedness consisted primarily of US$185 million in senior secured notes, plus working capital loans and hedging contracts owed to Barclays Bank. For the restructuring plan to become effective, at least three entities had to approve it. Once Preston had received the court's approval, it could present the plan to the noteholders for approval. If a majority of the noteholders by number and 75% by value approved it, then Preston could present the plan to its shareholders. In exchange for being released from BOP's debt obligations, Preston would have to transfer 95% of BOP's equity to the noteholders. Whether the court, the noteholders, and the shareholders would approve this plan remained to be seen. If they did approve it, BOP and Preston would continue as operating companies; if they did not approve it, the alternative was almost certainly some kind of liquidation. Questions a. Why did Bulong default in January 2000? Was it the result of a flawed strategy, poor execution, or bad luck? Were any of the factors that caused them to default foreseeable? (10 Marks) b. How did Preston try to resolve the default? Why has it been so difficult to restructure the debt? (5 Marks) c. Will the second proposed restructuring plan work? Who will support/oppose the plan contained in the schemes of arrangement? What are the alternatives if the plan is not approved? How much is Bulong worth as a going concern? (5 Marks) d. What are the lessons from this case? What measures might have prevented a default in the first place or facilitated a restructuring given that default had occurred? (5 Marks) Question 3. Restructuring Bulong's Project Debt Project summary Preston Resources submitted its scheme of arrangement to the Supreme Court of Western Australia on April 21, 2002. The scheme contained a restructuring plan for the secured debt of the company's principal subsidiary, Bulong Operations Pty. Ltd. (BOP). BOP's indebtedness consisted primarily of US$185 million in senior secured notes, plus working capital loans and hedging contracts owed to Barclays Bank. For the restructuring plan to become effective, at least three entities had to approve it. Once Preston had received the court's approval, it could present the plan to the noteholders for approval. If a majority of the noteholders by number and 75% by value approved it, then Preston could present the plan to its shareholders. In exchange for being released from BOP's debt obligations, Preston would have to transfer 95% of BOP's equity to the noteholders. Whether the court, the noteholders, and the shareholders would approve this plan remained to be seen. If they did approve it, BOP and Preston would continue as operating companies; if they did not approve it, the alternative was almost certainly some kind of liquidation. Questions a. Why did Bulong default in January 2000? Was it the result of a flawed strategy, poor execution, or bad luck? Were any of the factors that caused them to default foreseeable? (10 Marks) b. How did Preston try to resolve the default? Why has it been so difficult to restructure the debt? (5 Marks) c. Will the second proposed restructuring plan work? Who will support/oppose the plan contained in the schemes of arrangement? What are the alternatives if the plan is not approved? How much is Bulong worth as a going concern? (5 Marks) d. What are the lessons from this case? What measures might have prevented a default in the first place or facilitated a restructuring given that default had occurred