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11 August 20233 minute read

DLA Piper advises Zip on significant liability management exercise

DLA Piper has advised Zip Co Limited on its successful completion of a liability management exercise and equity placement allowing the Company to strengthen its balance sheet and position Zip for sustainable growth.

The exercise involved a consent solicitation process to amend the terms and conditions of Zip's SGX listed and English law governed AUD330 million Zero Coupon Senior Convertible Notes due 2028 (the Existing Notes), a concurrent incentivized conversion invitation (Conversion Invitation) and a placement of shares to raise AUD24,7 million (Equity Placement). Goldman Sachs Australia acted as dealer manager in connection with the Conversion Invitation and Consent Solicitation, and sole underwriter in connection with the Equity Placement.

The incentivized conversion invitation and the consent solicitation will together reduce Zip's corporate debt by AUD192,2 million which represents a reduction of nearly 60% of the principal amount outstanding of the Existing Notes. This is a fantastic result for the Company, which was achieved through an innovative liability management exercise in a non-distress context. The success of the Equity Placement to help in the broader restructuring of its current liabilities demonstrates the strong support from both domestic and offshore institutional investors for the Company.

Zip offers point-of-sale credit and digital payment services worldwide while operating a uniquely two-sided revenue model. The model generates income across both sides of consumer purchases, with fees generated from both merchants and customers for purchases made.

The DLA Piper multi-jurisdictional and cross-practice team was jointly led by Singapore-based Corporate partner and Capital Markets Asia Pacific practice head, Philip Lee, and Australia-based Capital Markets partner, Kelly Morrison, with support from Finance partner, Hugo Thistlewood, senior associates Andhari Sidharta and Belinda Pinnow and associate Le Jing Ong.

Philip Lee commented “We were delighted to advise Zip and its financial advisers CR Capital Consulting on this important transaction. This allows the Company to significantly reduce its corporate debt and strengthen its balance sheet. It demonstrates that companies can lock-in low bond trading prices in the current market to reduce offshore corporate bond liability through creative structuring and careful bondholder engagement. This transaction offers hope to other companies with significant offshore debt to pursue similar debt reduction exercises in a non-distress context”.

Kelly Morrison added “This restructuring is particularly timely, as the liability management exercise, in conjunction with Zip's astute decision to divest its European business, has enabled the company to prioritize high-growth markets while simultaneously reducing its corporate debt. As a long-term partner of Zip, we remain committed to supporting the company's future strategic initiatives”.

This transaction builds on DLA Piper’s existing experience advising clients on international debt restructurings involving a complex web of regulations and issues, including financial, credit and equity considerations, securities laws, stock exchange rules, clearing house procedures and finance and corporate law issues as well as general debtor and creditor issues. It also demonstrates DLA Piper’s ability to leverage its powerful network to provide its clients with multijurisdictional advice across the Asia Pacific region.

DLA Piper is one of the most active advisers to convertible note offerings, as they become a more common funding source in Australia.