Sino-forest makes big concessions to stave off collapse

TORONTO — Sino-forest Corp. has staved off an imminent collapse by convincing its bondholders to waive default on two of the company’s debt issues. But it wasn’t easy.

The scandal-plagued forestry firm had to make big concessions to its bondholders to get an agreement, including access to the company’s offices, assets and records. The bondholders now wield enormous influence over Sino-forest’s future strategy and actions.

Last month, Sino breached its debt covenants by failing to file financial results on time, as its independent committee has not finished its investigation into fraud allegations. The company received notices of default on its debt, and in order to avoid insolvency as soon as next week, it needed a majority of bondholders to waive the default.

Sino has to keep making interest payments, maintain minimum cash balances inside and outside China, and provide bondholders with confidential information and a strategic plan, which will be ready by March 31. Until the plan is ready, Sino’s ability to conduct “material transactions” will be restricted.

Sino-forest has been operating under a black cloud since last June, when short seller Carson Block of Muddy Waters LLC accused the company of fraud. The Ontario Securities Commission cease-traded the stock in August, saying insiders committed acts that they “know or ought to know perpetuate a fraud.” Both the OSC and RCMP continue to investigate the company.