Global Restructuring Review - Cross-border restructuring and insolvency legal news, features and events

GRR Awards 2019 – Innovation

Kyriaki Karadelis

14 May 2019

GRR Awards 2019 – Innovation

Park Guell, Barcelona (Credit: iStock.com/MasterLu)

With two lists already revealed, we are delighted to unveil our third list of nominees for the GRR Awards 2019, for the “Innovation in cross-border restructuring and insolvency” category.

The GRR Awards 2019 will be taking place in Barcelona’s historic El Palace Hotel on 15 June, the night before the opening reception for the International Insolvency Institute’s 19th Annual Conference.

They will kick off from 7pm with a networking reception followed by dinner, before trophies are presented in 11 categories to celebrate the people, places and matters that advanced the practice of cross-border restructuring and insolvency over the past year.

In addition to those 11 categories, we will also be revealing the top 30 firms in the GRR 100 2019 – our annual guide to approved cross-border insolvency and restructuring law firms – which will be presented to the wider public on the morning of Monday 17 June.

During March and April, we asked readers to submit nominations for several of the awards categories.

Having already revealed the first shortlist for “Noteworthy Spanish restructuring matter”, and the shortlist for the “Most important cross-border recognition decision”, we now present the nominees in the “Innovation in cross-border restructuring and insolvency” category.

Shortlists for the remaining categories will be published in GRR over the next few days, after which we will also unveil the recipient of our annual Lifetime achievement award.

For full details about the GRR Awards 2019, as well as photos from last year and to book a place, please visit our event website.

All profits from the GRR Awards go to the Swawou Layout Community Primary School for Girls in Sierra Leone, which was established in 2008 by GRR’s parent company, Law Business Research, to offer free primary education to girls from disadvantaged homes in Kenema town, eastern Sierra Leone.

Innovation in cross-border restructuring and insolvency – nominees

Interserve – To avoid the fate of its fellow public contractor Carillion, Interserve and its creditors came up with innovative debt-for-equity swap mechanics that made it possible to switch speedily to an alternative restructuring plan in case the group’s shareholders didn’t approve the first one. Under the first plan, the group’s lenders underwrote an open offer to shareholders giving them an opportunity to maintain a 5% shareholding, in return for the lenders being allowed to subscribe to the remaining shares in exchange for debt release. But when the shareholders did reject it, that kickstarted the contingency plan: the group’s holding company Interserve plc entered a carefully organised pre-pack administration as a plan B, so it could be sold to a new lender-owned entity on the same day, while continuing to trade as a solvent business with its debt reduced by £485 million (US$632 million). As part of the restructuring, Interserve’s well-performing concrete business RMDK also took on £350 million (US$456 million) in debt from its support service and construction business, letting cash flow to the latter. Those who nominated it say the transaction moved the market for speed of execution, with thousands of complex financing documents being agreed in less than three weeks so the restructuring could be finished up before the company ran out of liquidity.

Concordia International Corp – Drug maker Concordia completed a consensual out-of-court restructuring through a recapitalisation plan including a private placement, which was implemented under Canada’s Business Corporations Act (CBCA). The transaction was novel because the CBCA proceedings were begun before Concordia reached an agreement on the recapitalisation’s terms with debtholders, and because the plan included provisions limiting recovery on certain equity claims and releasing all other equity claims against the debtor – the first time such provisions have been used in a CBCA process, although they are common in Companies Creditors’ Arrangement Act (CCAA) proceedings in Canada. Most creatively, the plan provided for a dual solicitation of votes for both a CBCA process and an alternative Chapter 11 plan, in case the CBCA process failed, because the initial consenting secured and unsecured debtholders thought Chapter 11 offered greater protections and was preferable to entering a CCAA formal court process. It’s not uncommon in Canada for votes in favour of a CBCA plan to be deemed votes in favour of implementing the same plan under the CCAA without the need to resolicit – but Concordia’s was the first CBCA arrangement providing for a dual solicitation of votes for a CBCA plan and a Chapter 11 plan. The transaction documents allowed the company to toggle to a Chapter 11 proceeding if the CBCA failed without delay, but required the consent of the majority consenting debtholders to toggle to a CCAA proceeding.

Oi – The US$20 billion judicial reorganisation of Brazilian telecoms company Oi heralded a number of firsts in the Brazilian market. It was the first time Brazilian courts admitted Dutch investment companies as debtors in a judicial reorganisation to enable a global restructuring of a group. Mediation processes were also used creatively, with around 20,000 small creditors’ claims being settled in advance through mediation ahead of the restructuring plan being approved, as well as mediation also being used to reach agreement on the amounts due to creditors in 10,355 proof of claims proceedings. The case further witnessed the first time an administrative fine – imposed by Brazilian regulatory agency ANATEL and worth US$4.5 billion – was restructured in judicial reorganisation, with the courts granting Oi interim relief. Oi’s counsel obtained court orders preventing its service providers from terminating ongoing contracts and unreasonably increasing their owing to the restructuring, which were maintained against appeals. The company also used litigation to remove Oi’s controlling shareholders and board members from the restructuring process. Later, the fraught relationship between Oi, its shareholders and creditors gave rise to the first time Brazil’s Superior Court of Justice had to decide a conflict of jurisdiction issue between the judicial reorganisation proceedings, and an arbitrator – initially staying an anti-suit injunction from the arbitrator, but then deciding in favour of shareholder Bratel that the dispute over violation of Oi’s by-laws should be heard in arbitration. The court’s decision led to Oi and Bratel agreeing to end their disputes in 2019, with Bratel's Portuguese parent company Pharol getting €25 million towards legal fees and 33.8 million shares in Oi, in return for subscribing to Oi’s capital increase and restructuring plan. Incidentally, the capital increase was the largest ever in a Brazilian restructuring – US$1.25 billion, backstopped by a group of investors led by Oi’s Ad Hoc Committee of Bondholders.

Steinhoff International – South African retail conglomerate Steinhoff implemented the terms of a November 2018 restructuring lock up agreement by shifting the centre of main interests (COMI) of two of its Austrian holding companies, so they could enter a pair of groundbreaking inter-conditional CVAs that were used to restructure unsecured, foreign law governed debt instruments they had issued, particularly German Schuldshein loans and eurobonds. Though the requisite majorities of creditors approved the CVAs back in December, their implementation was stalled by an objection from a company called LSW that claimed it was a creditor. However, LSW’s application was dismissed by consent following amendments to the CVAs approved by creditors in March. The new long-stop date for the CVAs was later extended to 31 May, as the two Austrian companies try to seek consents for further amendments in response to developments since the CVAs were approved. On 8 May, Steinhoff released its 2017 financial results, admitting there was “significant doubt upon the company and group’s ability to continue as a going concern beyond the foreseeable future,” though some analysts have said the group’s remaining debt could be manageable if the CVAs succeed.

Noble Group – Asian commodities trader Noble Group restructured by completing a COMI transfer from Hong Kong to the UK, followed by a pair of schemes of arrangement in England and Bermuda and recognition of the English scheme in the US. The schemes included a claims adjudication process, designed to mirror proof of debt procedures in a liquidation, that allowed financial and non-financial creditors to form a single class, and contained mechanics that made it possible to adjust the allocation of scheme consideration, if necessary, after closing. They also included a novel risk participation structure, where creditors who agreed to guarantee new money would get more senior debt compared to non-participating creditors, and a special mechanism to allow retail and non-finance creditors to participate in trade finance facilities. Those who nominated Noble for the innovation award explained that the scheme process moved away from determining certain issues at the convening hearing and that the scheme proceedings featured the first “bar date” in a scheme for creditors to submit claims. Just as the restructuring was about to come to an end, Singaporean authorities declined to let the group relist on the Singapore Stock Exchange. So Noble successfully applied to the Bermudian court for the appointment of a light-touch provisional liquidator to implement the terms via a pre-pack sale of its assets to a new company owned by creditors, management and shareholders: the first time a provisional liquidation has been used to effect a pre-pack sale in the jurisdiction. 

Schahin II Finance Cayman scheme – Cayman registered Schahin II, a special purpose debt-issuing vehicle of the Delaware oil driller Dleif Drilling, promoted the first ever Cayman scheme of arrangement to include a debtor-in-possession rescue financing element. The US$15 million finance injection from certain noteholders was designed to cover monthly maintenance of a deepwater drillship, the Sertão, whose construction Schahin II had initially refinanced. In November 2015 the Sertão was arrested by an admiralty court in the UK, where it has remained for more than three years manned by a skeleton crew. Deutsche Bank – the indenture trustee of Schahin II’s existing notes – obtained permission from the UK court to begin a process for the sale of the vessel in April 2018. The DIP cash injection was intended to buy Deutsche Bank more time to complete the sale, covering the Sertão’s maintenance costs until March 2020. The Cayman scheme amended the terms of Schahin II’s original 2023 notes and permitted the issuance of a new tranche, senior in priority and secured against the vessel.

Mriya – One of Ukraine’s biggest agricultural groups, Mriya completed a US$1.1 billion debt restructuring in September 2018 with the liquidation sale of its assets out of a Cypriot liquidation process to a UK arm of Saudi state-owned investor SALIC. The non-cash consideration sale marked the culmination of a three-year restructuring process that also included a voluntary exchange offer and consent solicitation, plus 13 Ukrainian bankruptcy proceedings for the entities that held the group’s key assets to clean up the rest of the company’s balance sheet. The entire operating group was transferred to a newly incorporated English company, Mriya Farming, with participating creditors being awarded new shares and English law-governed senior secured notes listed in the Channel Islands, as well as the right to future recoveries from the Cypriot liquidation. In all, the group managed to consensually restructure 13 unsecured bank credits, seven suppliers’ credits, one Euro commercial paper programme and two issues of eurobonds in one single secured debt instrument. The restructuring marked the first time that Ukrainian courts accepted international bondholders’ claims as pari passu to local bank claims.

Paperchase CVA introducing turnover rents – UK stationer Paperchase recently proposed what was described as the first CVA of the current cycle to introduce turnover rents, aligning retailers’ leases to their cash generation. While guaranteeing a minimum base rate rent for landlords payable irrespective of sales, the CVA proposes the retailer make top-up payments based on the performance of individual stores, which will be divided into six categories. Shops in category 1 will keep their rents as they are, while those in categories 2, 3 and 4 – deemed to be underperforming but commercially viable if rents are reduced – will be subject to the new turnover rents. Stores in categories 2, 3 and 4 will see different haircuts on rent, with top-up payments being calculated based on contractual rent divided by turnover and subject to annual adjustments. Finally, category 5 and 6 shops will see a 50% rent reduction for three months, then either a rent-free period or closure. The proposal also altered when rent payments are due, from quarterly to monthly. Creditors of Paperchase approved the CVA proposal in March. 

Woodbridge group money-now liquidity facility – In August 2018, Judge Kevin Carey in the US Bankruptcy Court for Delaware approved a “unique” liquidity facility proposed by the unsecured creditors and noteholders of the Woodbridge Group, a California property developer alleged to have been operated as a Ponzi scheme. The facility allowed noteholders – who in many cases were individuals investing their life savings or “nest egg” fortunes into the property developer – to receive an immediate payout on 30% of their claims, through a loan from New York fund Axar Capital Management. Under the facility, Axar’s loan will be repaid out of the distributions the creditors would have received from the estate when Woodbridge finally emerges from bankruptcy. If the estate pays out less than 30% of the claims, Axar would take the hit. At the time the facility was approved, counsel to the creditors’ committee told GRR it was an important resource for noteholders who are “suffering great hardship” because of the delay in obtaining distributions as a consequence of the bankruptcy process.

Gibson Brands Inc post-petition financing - The Delaware bankruptcy court approved in June 2018 an atypical US$135 million amended post-petition financing package for guitar maker Gibson, provided by an ad hoc group of secured noteholders and backstopped by affiliates of KKR Credit, Melody Capital Partners and several other hedge funds. In return for the new money, the ad hoc secured noteholders received senior liens on assets that were unencumbered before Gibson entered bankruptcy, or on assets defined as “notes priority collateral” in a 2013 intercreditor agreement that set forth the respective rights between Gibson’s secured lenders and noteholders. However, the supporting noteholders didn’t get super priority liens over other secured lenders, which is prohibited under the 2013 agreement. Instead, as part of the financing deal, the supporting noteholders were also offered the opportunity to exercise a purchase option provided in the 2013 agreement to acquire all of Gibson's secured loans under various asset-backed loan (ABL) and term loan facilities, in return for immediate cash upfront to cover all their debts, accrued interest, fees and expenses. The purchase option deal was devised to save the debtors around US$4 million in make-whole fees, which became payable to asset-backed loan lenders when Gibson filed its Chapter 11 case.

Key Safety Systems/ Takata acquisition and restructuring – Japanese car parts manufacturer Takata was forced to make the largest-ever auto parts recall in history in 2017 after some of its airbag inflators – known as PSAN inflators – were found to have been faulty. It subsequently entered civil rehabilitation proceedings in Tokyo and a Chapter 11 in Delaware, drawing up a deal with a Michigan-based rival, Key Safety Systems (KSS), that acquired all of its non-PSAN assets though coordinated court proceedings in the US, Japan and Canada, as well as out-of-court asset purchase transactions in Germany, Mexico and China. This “PSAN carve-out” transaction was done in such a way as to then allow the restructured successor of Takata’s US holding company to acquire the left-behind airbag inflator arm of the business at the end, so the business could continue operating – because if it had stopped operating altogether, approval for a replacement would have taken years and the automotive industry would have suffered badly. The US$1.6 billion acquisition and restructuring closed in April 2018, and was also innovative in including a settlement for all current and future litigation that Takata could face in respect of the faulty inflators after the Chapter 11 plan was confirmed, as well as all contribution and indemnity claims. The so-called “channelling injunction”, which protected KSS and 15 participating car manufacturers who agreed to contribute to a trust to pay PSAN airbag-related tort claims, was unusual since most such injunctions only impact claims arising prior to Chapter 11 confirmation. The injunction and third-party releases also applied to claims outside the US and unusually protected both Takata and KSS as purchaser, as well as the participating car manufacturers from post-closing risk.