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

GRR 100 2019

Cleary Gottlieb Steen & Hamilton

14 May 2019

A proudly international firm that’s a go-to for sovereign debtors

Global heads of restructuring and insolvency: -
Partners in restructuring team: 32
Restructuring lawyers in Who’s Who Legal: 2
Active cross-border restructuring and insolvency matters: 40+
Total billable hours of the group: 100,000+

History of the practice

"Globalising the legal profession." That's the firm's mission statement. Indeed, Cleary Gottlieb Steen & Hamilton is unapologetic about the cross-border nature of its bankruptcy and restructuring practice – multi-jurisdictional cases are its bread and butter.

Since the firm launched in 1946, it has always had international matters on its books. Today, its 16 offices operate as one single, integrated partnership and more than a third of Cleary partners have done a stint in two or more of its locations. It was the first US firm qualified to practise in Japan.

The firm is internationally renowned for being counsel to sovereign states in sticky situations, particularly Latin American governments. New York senior partner Lee Buchheit has led debt restructuring negotiations for several countries, and invented the collective action clause for sovereign debt agreements – a trick borrowed from the corporate restructuring world that allows a supermajority of sovereign bondholders to compel all bondholders to accept a restructuring deal. Collective action clauses are now mandatory in all European countries' sovereign debt contracts. Buchheit announced his retirement from the firm in February 2019 after 43 years of service.

Fun fact: The US film director and television producer Doug Liman recently credited Cleary as an inspiration for his TV series Suits, which takes place in a fictional New York law firm and until recently featured American actress, and now member of the British royal family, Meghan Markle.

Network

New York is the beating heart of Cleary's cross-border restructuring and insolvency practice, which also has a strong presence in London, supported in Europe by partners in Milan, Paris, Frankfurt, Rome and Brussels.

Elsewhere, there are partners with restructuring experience in Abu Dhabi, São Paulo, Buenos Aires, Moscow, Seoul and Washington, DC.

Who uses it?

Creditors and debtors in equal measure and – of course – bankrupt sovereigns.

One the creditors' side, it recently teamed up with Mexico's Santamarina y Steta to represent bondholders in the financial restructuring of Mexican oilfield services joint venture Oro Negro, and is also counsel to an ad hoc committee of bondholders in the reorganisation of Brazilian telecoms company Oi (alongside Brazil's Pinheiro Neto Advogados). It also advised the ad hoc group of bond holders in the restructuring of Brazilian group Odebrecht’s oil and gas company, and it is representing investors in the debt of Venezuela and the state-owned oil and gas company PDVSA.

On the debtors' side, Cleary has acted for Nortel's US entities for years. Korean companies Daewoo, SK Global and Hyundai Merchant Marine, have also hired the firm for restructurings in the past. It is providing counsel to the disinterested manager of Toys “R” Us subsidiary Geoffrey, and counts Spanish energy giant Abengoa among its clients too.

Its sovereign clients include Argentina, for which Cleary was counsel in its long-running battle against holdouts of the state's 2002 sovereign debt restructuring; Russia, which hired Cleary to chase Ukraine for defaulting on a US$3 billion Eurobond in 2015; and Belize. But its most famous sovereign client is arguably Greece.

Historic track record

In 2012, Buchheit designed a Greek law that retroactively installed collective action clauses in the country's sovereign bonds that didn't already have them. It allowed Greece to cram down dissenters and obtain enough votes from bondholders to pass its €200 billion private debt restructuring of that year. Cleary has since successfully defended that restructuring before various international courts and tribunals, including Germany's federal Supreme Court, which found – twice – that Greece had sovereign immunity against claims from German bondholders seeking damages for losses incurred via the retroactive cram down process.

After nearly 15 years of bitter disputes, Argentina and its lead holdouts settled their differences in February 2016, following a change in administration and new political appetite for a deal. The government of new president Mauricio Macri actually brought in Cravath Swaine & Moore to close a series of New York litigations against the lead holdouts – but Cleary remained counsel to Argentina for out-of-court matters and law suits against individual bondholders. Partner Carmine Boccuzzi later successfully defended the state from two separate claims by groups of individual bondholders: one group that refused to enter the settlement, and another that argued the deal breached pari passu clauses in the state's bond contracts.

Elsewhere in Latin America, New York partner Richard Cooper led a team that helped Mexico's largest construction company, Empresas ICA, restructure US$3.5 billion in debt via a pre-pack plan in local concurso mercantil proceedings. The company had New York law governed bonds and its largest creditor and new finance provider, Luxembourg-registered Fintech Europe, had to approve the pre-pack before it was filed.

Again on the sovereign side, Belize recently used the firm for advice on the record-breaking third restructuring of a tranche of US dollar-denominated bonds, via a consent solicitation, rather than an exchange. Buchheit dropped in a collective action clause allowing modifications to the contracts with consent when the bonds were restructured the first time in 2007.

On the commercial side, Cleary represented Barclays in its purchase of Lehman Brothers' broker-dealer business, which was negotiated and approved by a New York bankruptcy court in the course of one fateful week in September 2008.

The firm was (and still is) the long-time counsel to Nortel's US debtors alongside Torys in Canada. Early on in the case, partners Lisa Schweitzer and James Bromley helped Nortel raise US$4.5 billion from the sale of its patent portfolio – the largest patent sale ever closed. It took years and years for the various stakeholders to agree on how to allocate the total liquidation sales proceeds (more than US$7.3 billion was trapped in a lock box until very recently) but in October 2016 the competing parties finally reached a settlement. Under that deal – since approved by UK, US and Canadian courts – Nortel's US entities who hired Cleary will receive US$1.7 billion, or 24% of the overall funds raised.

In the UK, Cleary has been acting for Goldman Sachs International in the administration of Lehman Brothers International Europe. Goldman Sachs was selected to represent the interests of financial institution creditors in the Waterfall IIC tranche of the multifaceted litigations concerning the allocation of leftover estate funds.

Recent events

New York partners Richard Cooper and Luke Barefoot and São Paulo partner Francisco Cestero continued to represent  the ad hoc group of over 70 bondholders in the judicial reorganisation of Brazil's Oi Telecom this year. Earlier this year, Oi finally completed the largest private sector restructuring in Latin American history, after years of legal battles in several jurisdictions. The group issued over 3 billion new shares in a 4 billion rights offering on 28 January, the last major step in its US$20 billion restructuring plan. Crucial to the restructuring was a dispute between the ad hoc group of bondholders and another group led by Aurelius Capital management. The Aurelius-led group funded a petition to the SDNY bankruptcy court, asking it to amend its prior recognition order in Oi’s Chapter 15 case, arguing the Netherlands and not Brazil was Oi’s COMI. After a four-day trial, the court sided with Cleary’s arguments and dismissed the application. Just weeks later in December 2017, the restructuring plan was approved by creditors. The Cleary team is also providing counsel in Oi-related litigation in the Netherlands and the UK.

Also in Latin America Barefoot and Cooper, along with fellow New York partners Lisa Schweitzer and Jane VanLare, have been representing Mexican financial services company Grupo Inbursa in the restructuring of Italian plastics firm Mossi & Ghisolfi (M&G). Grupo Inbursa is a secured lender to multiple entities in the M&G corporate group in the restructuring of its debt in Brazil, Mexico and in some of the Chapter 11 cases commenced by US affiliates. Among other things, the Cleary team represented Inbursa’s affiliate in obtaining a US$100 million debtor-in-possession facility. They also represented Inbursa and its affiliates as bidders in the sale of M&G’s US assets, successfully winning court-approval of a bid that would pay Inbursa’s US$430 million secured loan and its affiliate’s DIP loan in full.

The firm also acted for the ad hoc group of bondholders in the largest ever Brazilian extrajudicial restructuring to date and its parallel Chapter 15 recognition, for offshore drilling group Odebrecht Óleo e Gás (OOG). The case won a "restructuring deal of the year" award from GRR's sister publication Latin Lawyer in spring 2018.

In New York, partner Sean O’Neal is providing counsel to ESL Investments – the largest creditor and equity holder of historic US department chain Sears, and owned by the retail behemoth’s former CEO Eddie Lampert. Sears filed Chapter 11 proceedings in October 2018, and announced ESL as the winning bidder in the company’s bankruptcy auction in January. Cleary’s representation to ESL includes advice relating to the hedge fund’s pre-petition financing of Sears. Subject to the SDNY court’s approval, ESL will acquire all of Sears’ assets on a going-concern basis for about US$5.2 billion.

O’Neal is also advising India’s second largest sovereign bank Punjab National Bank, in the US bankruptcy proceedings of fine jewellery wholesaler Firestar Diamond, which is indirectly owned by Samuels Jewellers and Nirav Modi. Modi is alleged to be one of the masterminds behind a US$2 billion fraud against the bank – the largest such fraud in Indian history. O’Neal was successful in appointing a Chapter 11 trustee in the bankruptcy and has been working with the court-appointed examiner to obtain a report finding the US debtors were likely to have participated in the fraud.

Elsewhere Barefoot has been providing counsel to the disinterested manager of Geoffrey – a subsidiary of and Chapter 11 debtor alongside Toys “R” Us. Geoffrey owns the “Toys “R” Us” and “Babies “R” Us” trademarks and other intellectual property, and is the licensor of the IP to both entities and third parties in the US, Europe and Asia. The Cleary team was advising Geoffrey’s disinterested manager David Schulte regarding potential claims the company has against debtor and non-debtor affiliates of Toys Inc and third parties, and is representing his interests in Geoffrey’s reorganisation plan.

Meanwhile, on the other side of the Atlantic, London partners Andrew Shutter and Polina Lyadnova acted as counsel to Russian transport operator Far Eastern Shipping Company (FESCO) on a restructuring of its indebtedness under two series of listed US-dollar denominated Eurobonds. The pair represented FESCO in negotiations with an ad hoc group of bondholders, and implemented the restructuring using an English scheme of arrangement, which was sanctioned in November 2017.

Lyadnova, with London partner Jim Ho and Moscow partner Scott Senecal, also acted for Luxembourg-headquartered Eurasian Resources Group in its huge US$6.85 billion debt restructuring.  The complex transaction saw the execution of new facility agreements with Russian banks VTB and Sberbank, and with the Development Bank of Kazakhstan. The restructuring was successfully completed in October 2018.

In terms of its recent sovereign debt work, Shutter and Ho advised Greece on its €30 billion exchange offer that resulted in the exchange of €25.5 billion of the €30 billion bonds in November 2017. The new and old bonds are governed by English law.

Ho and Paris partner Barthélemy Faye have also been representing the Republic of Congo in relation to the US$2 billion restructuring of its oil prepayment debt, and the Republic of Chad and its state-owned oil company in relation to a US$1.3 billion oil pre-financing debt restructuring.

The firm has been continuing to represent the Russian Ministry of Finance in a claim a UK investment manager brought against Ukraine before the English High Court over its unpaid US$3 billion Eurobond issuance. Russia acquired the bonds in 2013: when Ukraine failed to pay out on them, it raised Russia's annexation of Crimea as a defence. Despite finding the underlying circumstances of the deal "deeply troubling", the High Court ruled in favour of the investment manager, but allowed Ukraine to appeal. In September, the Court of Appeal overturned the decision and has ordered a trial.

In November 2017, Cleary's London office hired from Herbert Smith Freehills disputes partner James Norris-Jones, who helped represent EY partners as the UK administrators of Nortel. But in New York, following Buchheit’s retirement in February 2019, his fellow partner James Bromley joined Sullivan & Cromwell in March as its co-head of restructuring after 30 years with Cleary.