Marine Money Hong Kong Ship Finance Forum Restructure, Consolidation and Opportunity 7 April 2016 Peter Lee

Transcription

1 Marine Money Hong Kong Ship Finance Forum Restructure, Consolidation and Opportunity 7 April 2016 Peter Lee

2 Acknowledgement Foreign Shipping Companies Will Test The Limits of Bankruptcy Jurisdiction, The New York Law Journal, September 14, 2015 edition - by Michael J. Venditto and Sarah K. Kam (Reed Smith New York) Restructuring Road Map - power point presentation by Jane Sarma (Reed Smith New York), February 2016

3 Disclaimer This presentation has been prepared for reference only. The information contained in this presentation should not form the basis of any decision as to a particular cause of action; nor should it be relied upon as legal advice or regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or expert assistance is required, it is strongly recommended that professional advice be sought.

4 Restructure, Consolidation and Opportunity What are we talking about, when we talk about Restructure and Consolidation? at least from a lawyer s point of view.

5 Restructure, Consolidation and Opportunity Corporate Restructure? Consolidation - Alliance? JV? Merger?

6 Restructure, Consolidation and Opportunity Debt Restructure? Or both Corporate and Debt Restructure? One easily links to another

7 Restructure, Consolidation and Opportunity Debt restructuring Why?

8 Restructure, Consolidation and Opportunity breathing space fresh start

9 Restructure, Consolidation and Opportunity Grogan v. Garner, 498 U.S. 279 (1991) The central purpose of the US Bankruptcy Code is to provide a procedure by which... debtors can reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.

10 Restructure, Consolidation and Opportunity A viable entity! An OPPORTUNITY!

11 Restructure, Consolidation and Opportunity

12 Restructure, Consolidation and Opportunity But, will the restructured entity actually be viable.? and viable according to whom?

13 Restructure, Consolidation and Opportunity So, what are we talking about, when we talk about Viable and Opportunity? Viable to / Opportunity for:- Creditor? Debtor? New investor? distressed asset buyer? Ideally. the restructuring plan should be viable to everyone.

14 Restructure, Consolidation and Opportunity Debt restructuring. 2 main types/styles/ways

15 Restructure, Consolidation and Opportunity Out of court / without judicial forum the debtor and all creditors trying to agree something, without the court standstill agreement between all parties etc. etc.

16 Restructure, Consolidation and Opportunity With a judicial forum / bankruptcy protection US Chapter 11 Scheme of arrangement (HK) Various Pros and Cons?

17 Restructure, Consolidation and Opportunity Wait, what are we talking about, when we are talk about debt? Who is owing what (debt) to whom (stakeholders) on what terms? Important information for everyone involved, including distressed asset buyer (i.e. is the asset clean?).

18 INFORMATION!! A. Identify Debts Reporting requirements under loan documents may be too late/infrequent Other sources Public filings Press reports Rumors in the market Asset valuations

19 INFORMATION!! B. Identify stakeholders (their rights and obligations) Other lenders Syndication issues Other facilities Trade creditors Maritime lien holders (ex: crew wages) Contract counterparties (ex: charterers) Shipyards ECAs Note holders Equity Tax authorities Other regulators Others (ex: environmental claims) Owner of the new money

20 INFORMATION!! C. Identify jurisdictions involved Governing law of documents Location of borrower s operations/registered office (Centre of Main Interest) Vessel trading patterns (good/bad jurisdictions for arrest) Extra-territorial jurisdiction of relevant courts (U.S. bankruptcy court)

21 INFORMATION!! D. Loan documentation Collateral package Rights/options of lenders Possible document or perfection deficiencies

22 INFORMATION!! E. Accidental waivers of defaults? Notices of default sent promptly? Action upon default deferred? Short term forbearance/waiver?

23 Negotiation phase A. Business plan for restructuring how does it fit with business objectives/overall strategy? Forecast of liquidity for next months Source of liquidity Possible sale of assets Possible sale of debt

24 Negotiation phase B. Things that could be done. Acknowledgment of defaults and amounts owed Establish milestones Interest rate Amortization/extension of maturity date Pushing payments to balloon Changes in covenants Granting additional collateral Contributions of capital from other sources Current equity New equity provider Debt-to-equity swap Sales of certain assets Release of claims against lender

25 Implementation phase If restructuring plan agreed - Documentation of restructuring Out-of-court Can only be done if all agree and consent Chapter 11 - pre-packaged/pre-negotiated Can be a useful tool but often difficult to implement Binding on non-consenting creditors 100% approval not needed Approval by classes of creditor Automatic stay protection Ongoing monitoring

26 US Chapter 11 vs. other forum Low jurisdictional bar (section 109(a) of the Bankruptcy Code) To be eligible as a debtor under either chapter 11 or chapter 15, an entity must have either a residence, domicile, place of business or property in the US. US courts have exercised jurisdiction over international shipping companies with no offices, employees or material assets in the US. A small bank account or even the unused balance of a retainer held by bankruptcy counsel has been held sufficient. But the key is how to get out of Chapter 11!

27 US Chapter 11 vs. other forum Different emphasis? Many countries bankruptcy laws emphasize reimbursing creditors, or protecting particular stakeholders, rather than rehabilitating a business, with the result that distressed companies are frequently liquidated. US Chapter 11 permits a debtor s existing board of directors and management to remain in control of the business, vesting the management with equitable powers with the goal of preserving value

28 US Chapter 11 vs. other forum Speed? Presumably quicker and more efficient

29 Bankruptcy jurisdiction vs. Admiralty jurisdiction The underlying principles of bankruptcy and admiralty law are inconsistent. The juxtaposition of admiralty and bankruptcy law creates some unusual issues E.g. treatment of maritime liens in bankruptcy cases

30 Restructure, Consolidation and Opportunity