4 March 2019: L&T Finance is challenging in the apex court a bankruptcy appeals bench ruling that allowed Rs 16,000 crore of IL&FS debt to be categorised as ‘amber’, arguing that the contract has no room to qualify the stressed financier’s outstanding loans based on solvency.
The National Company Law Appellate tribunal (NCLAT) approved three loan categories – green, amber and red — based on the ability of a particular company to repay debt and interest. L&T Finance has Rs 1,800 crore of debt exposure to the IL&FS group companies or its special purpose vehicles (SPV).
“SPV loans getting classified under different categories have no basis in the contract,” said a source close to the development. “The company is challenging the NCLAT order in the Supreme Court.”
The NCLAT has asked the IL&FS board to ensure that companies with positive cash flow remain as going concerns and that their operations are not disrupted. Money from escrow accounts of SPVs will remain in individual accounts after meeting the operational expenses.
However, all companies of the group that fail to meet cash flow solvency test will remain under the moratorium granted by NCLAT. Approximately, the amount of loan that will fall under the Amber category is Rs 16,000 crore. Loans under ‘red’ and ‘green’ categories amount to around Rs 65,000 crore and Rs 7,000 crore, respectively.
“None of our six projects are in the red list,” said Dinanath Dubhashi, MD of L&T Finance. “The court and IL&FS have confirmed our view that none of our projects will have losses.”
L&T Finance did not comment on the likelihood of its appeal before the apex court.
L&T Finance has exposure to six road SPVs and all of them are operational. Out of these six, four are annuity projects, where money comes directly from the government: Two are toll projects.
According to the IL&FS resolution framework report, green, amber and red are categories of companies based on their ability to meet payment obligations over the coming 12 months.
Companies that are able to pay all obligations have been categorised as green, companies only able to meet operational payments and senior secured debt obligations are categorised as amber and those that are unable to meet obligations to even senior secured financial creditors are categorised as red. According to the plan, IL&FS can service up to of Rs 7,000 crore immediately.
The plan has assured that the seniority of SPV project lenders will be maintained during asset monetisation and these project lenders will get priority in kilter with the repayment waterfall mandated in law.
The relevant section of the law says that senior secured creditor loans are cleared first and any surplus that remains thereafter is given to unsecured or subordinated creditors, and thereafter to the equity owners.