Narrative
Full Description
Project narrative
In 2018, Harbin Pharmaceutical Group Holdings Co., Ltd. — a Chinese state-owned pharmaceutical corporation with CITIC Capital Holdings Limited, a related company of Chinese state-owned conglomerate CITIC Group Corporation, as its major shareholder — acquired a 40% stake in GNC Holdings, Inc. — a Delaware-incorporated American health food and wellness retailer (vitamin and herbal supplements) and body building chain listed on the New York Stock Exchange and based in Pittsburgh, Pennsylvania — with a loan from the Bank of China (BOC), as captured by Record ID#106190. On June 23, 2020, GNC Holdings filed for Chapter 11 protection in the U.S. bankruptcy court in Wilmington, Delaware. GNC Holdings had faced heavy pressure due to its an almost $900 million USD debt load and declining sales at its brick-and-mortar stores and then their temporary closure due to the COVID-19 pandemic, with a nearly $200.1 million USD loss in the first quarter of 2020 due to the closures GNC planned to close at least 800 to 1,200 of its 7,300 locations (including 5,200 in the United States and the rest in about 50 countries) and sell itself; GNC sought to pursue a "dual-path" restructuring where it would either be sold as a going concern or improve its balance sheet by shedding over $300 million USD of debt. GNC said it had agreed in principle with many lenders to sell itself to an affiliate of its largest shareholder, Harbin Pharmaceutical Group for $760 million USD in a court-supervised auction, subject to higher bids and claimed to have lined up $130 million USD in new financing. Business operations would continue and it was hoped that it could emerge from Chapter 11 in the fall. On August 7, 2020, Harbin Pharmaceutical Group Holdings entered into a stalking horse bid agreement with GNC Holdings to buy the company for $550 million USD in cash and the assumption of certain liabilities, namely paying off $210 million USD of GNC's secondary loans, issuing $10 million USD in junior convertible notes to GNC's unsecured creditors, and assuming most operating and other liabilities ($770 million USD in total). On or around the stalking horse agreement date, the Macau Branch of BOC issued a debt commitment letter for a $400,000,000 USD senior secured term loan facility for GNC Holdings, LLC — a Delaware-incorporated special purpose vehicle (SPV) and a wholly-owned subsidiary of GNC Holdings, Inc., a wholly-owned subsidiary of Delaware-incorporated ZT Biopharmaceutical LLC, a wholly-owned subsidiary of Harbin Pharmaceutical Hong Kong I Limited, a wholly-owned subsidiary of Harbin Pharmaceutical Group Holdings — to finance its acquisition of GNC Holdings. This loan carried a maturity period of five years from its initial utilization date, an availability period of six months from signing, and an interest rate of either 1, 2, 3, or 6-month USD-LIBOR (subject to a floor of zero) plus a margin of 4.25% per annum. This loan carried a repayment profile of semi-annual installments beginning 12 months from initial utilization (a grace period of one year) with a stated amount of principal amount due (2% due at 12 months; 3% at 18 months; 5% at 24 months; 8% at 30 months; 10% at 36 months; 12% at 42 months; 15% at 48 months; 20% at 54 months; and 25% at 60 months). The loan included an accordion feature for an additional revolving credit facility to not exceed $100,000,000 USD. The loan included financial covenants to be tested semi-annually at the consolidated level of the group beginning June 30, 2021 for its ratio of total consolidated net debt to total consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to not exceed 3.5:1 (And then 3.0:1 after June 30, 2023), a debt-service coverage ratio (DSCR) of not less than 1.25x, and an annual cap on capital expenditure to be confirmed based on project company requirements. This loan was secured by (i.e. collateralized against) a security over all shares in GNC Holdings, LLC and all shareholder loans made by ZT Biopharmaceutical LLC to GNC Holdings, LLC; a security over all shares in all present and future material subsidiaries of GNC Holdings, LLC, subject to agreed security principles; a security over material assets (including intellectual property and, in the case of GNC Holdings, LLC, the debt service reserve account) and all present and future material subsidiaries of GNC Holdings, LLC, subject to agreed security principles; a security over certain bank accounts of Harbin Pharmaceutical Hong Kong I Limited and Harbin Pharmaceutical Group Holdings Co., Ltd.; and a first priority security over the shares (46.49% share) of Harbin Pharmaceutical Group Co., Limited (a company listed on the Shanghai Stock Exchange partly owned by Harbin Pharmaceutical Group Holding) held by Harbin Pharmaceutical Group Holdings. Harbin Pharmaceutical Group Holding, Harbin Pharmaceutical Hong Kong I, and ZT Biopharmaceutical LLC issued guarantees for this loan. BOC Macau Branch served as mandated lead arranger, original lender, agent, and security agent. This loan was governed under Hong Kong law. The proceeds were to be used to finance the purchase price of the acquisition and the refinancing, repurchase and/or redeeming of certain existing financial indebtedness of GNC Holdings, Inc., funding the acquisition costs and deposits made to the debt service reserve account, and to fund the general working capital of the group. The bidding deadline was on September 11, 2020, with the auction scheduled for September 15, 2020 and a hearing for the judge to consider on September 17, 2020. The sale was approved by the bankruptcy court on September 18, 2020. The BOC $400 million USD loan appears to have been finalized in October 2020. The acquisition was completed on October 8, 2020 with ZT Biopharmaceutical acquiring substantially all of the company's assets. The bankruptcy court overseeing the Chapter 11 proceedings of GNC Holdings Inc. confirmed the company's reorganization plan on October 14, 2020. This acquisition was subject to public national security concerns. On September 3, 2020, the Coalition for a Prosperous America (CPA) sent a letter to U.S. Treasury Secretary Steven Mnuchin requesting a review of Harbin's acquisition of GNC Holdings by the Committee on Foreign Investment in the United States (CFIUS), arguing it was the type of acquisition CFIUS was designed to review. On September 10, 2020, Florida Senator Marco Rubio sent a letter to Secretary Mnuchin also requesting a review. Rubio claimed, in a statement and in an interview on Fox News, that the Chinese Government engaged in attempts to acquire sensitive American personal data through illicit means and saw the acquisition of GNC Holdings, a major health and nutrition chain with over 5,200 retail stores in the United States and an expansive customer base, as allowing the Chinese Government to acquire personal health and financial information and data on millions of Americans legally. GNC Holdings had stores located on or near dozens of U.S. military forces including Andrews Air Force Base, Quantico, and 29 Palms. The reason why CFIUS was not already reviewing the transaction was because Harbin had already owned a minority stake in GNC Holdings acquired before updates were made to the CIFIUS Foreign Investment Risk Review Modernization Act on August 13, 2018; CFIUS had approved that deal in 2018. For its part, GNC Holdings stated that its consumer data was safeguarded and that it had already been reviewed by CFIUS in 2018.