Davis Polk & Wardwell

Past work for Odebrecht bondholders secured Davis Polk some new instructions in Brazil, as it continued to attract large-scale, high-value Chapter 11 and 15 matters

History of the practice

Davis Polk & Wardwell can trace its origins back to 1849, when it went by the name Guthrie Bangs & Van Sinderen and served as a professional berth for US President Grover Cleveland between his two non-consecutive terms in the White House.

The cross-border insolvency practice dates back to the 1970s, when it conducted seminal work in settlement risk in international finance and (at the time, novel) cross-border asset freezes, including in relation to the 1979 Iranian crisis. Among Davis Polk’s then-clients was JP Morgan predecessor Morgan Guaranty Trust Company, which it advised on the collapse of Herstatt Bank. The firm also worked on some of the first international cases to involve court cooperation across jurisdictions, such the restructuring of Robert Maxwell’s media empire, which saw its partners negotiate cross-border protocols long before the drafting of Chapter 15.

Its role in international insolvency developed dramatically during the 1980s and 1990s, when it became a key player in major developments including the International Bar Association’s Cross-border Insolvency Concordat. Donald Bernstein – New York partner and current chairman of the firm’s restructuring group – also served as an official delegate to the insolvency working group of the United Nations Commission on International Trade Law ahead of its production of the Model Law; and was a founding director of the International Insolvency Institute (III).

Since 2008, the firm has continued to advise Western banks and major financial institutions in restructurings, as well as helping them to comply with new regulations enforced as a result of the global financial crisis.

Bernstein currently heads the restructuring group with two practice co-chairs in New York, Marshall Huebner and Damian Schaible, and alongside Timothy Graulich – an III member and INSOL fellow who is lead partner of Davis Polk & Wardwell’s cross-border insolvency practice.

Network

Davis Polk’s insolvency team spans four continents. The firm’s Manhattan office hosts the most partners, who work with colleagues in London, São Paulo, Hong Kong and Tokyo.

Who uses it?

Fulcrum creditors, especially ad hoc groups of lenders and noteholders that usually end up owning restructured companies.

The firm advised all eight US global systemically important financial institutions (G-SIFIs) on their “living wills” required under the US Dodd-Frank Act. It is the leading US-based global firm working with international regulators on the “too big to fail” problem.

Some other important client names include Ford Motor Company; the administrators and liquidators of UK and European Lehman Brothers affiliates; and UK retail conglomerate Tesco.

Davis Polk’s offices in Brazil, Hong Kong and Japan have led to instructions in several large-scale Latin American and Asia-Pacific restructurings.

Historic track record

In the early 1990s, Bernstein represented three bank lenders to Robert Maxwell’s business empire in protocol negotiations between a US examiner and PwC in the UK. Now-senior counsel Karen Wagner also acted for them in a preferential transfers litigation, which was thrown out of the English courts because the US had superior jurisdiction. That litigation ended up in the US Second Circuit Court of Appeals, where the banks prevailed, and is still cited in cross-border cases today.

At around the same time, Davis Polk represented Irish commercial aircraft leasing company Guinness Peat Aviation in a US$10 billion restructuring, leading an exchange offer.

It also acted as US counsel to Telecom Argentina – which was restructuring in its native country – in a New York litigation to address the claims of non-consenting debt holders. The case established an important choice of law precedent in America.

The firm also represented an international banking group in one of the first cross-border pre-packaged cases: the 1992 bankruptcy of Memorex-Telex, a US electrical goods manufacturer.

Davis Polk’s work with large banks saw it act for the joint administrators and liquidators of Lehman Brothers International Europe (LBIE) and its UK-based affiliates in litigation worth US$100 billion against its US entities; and then in a complex settlement resolving billions of dollars’ worth of claims among more than 80 Lehman entities. Later, it helped LBIE’s administrators reach a US$38 million settlement with Lehman Brothers Inc and Lehman’s US broker in what was one of the largest inter-company settlements in history and the largest case to engage the US Securities Investor Protection Act.

Davis Polk acted for the Federal Reserve Bank of New York and the US Department of the Treasury in connection with the successful US$180 billion restructuring and recapitalisation of American International Group.

The firm managed to get Chapter 15 recognition of computer parts manufacturer Elpida’s Japanese plan of reorganisation – the first time that a US court recognised a Japanese plan under Chapter 15.

More recently, it also worked on the bankruptcy of American toy retailer Toys “R” Us, advising the administrative agent and book runner on a US$2.3 billion debtor-in-possession (DIP) facility. In the same case, Davis Polk advised Fung Retailing, the former minority partner in Toys “R” Us’ Asia joint venture (JV), on its acquisition of a greater stake in the JV via a settlement with the majority partner in December 2018. The settlement allowed Toys “R” Us to exit Chapter 11 weeks later.

The firm further advised Volkswagen on its worldwide multibillion-dollar exposure to defective airbag maker Takata. After pleading guilty to wire fraud and agreeing to pay US$850 million to car manufacturers, Takata entered into civil rehabilitation in Japan and Chapter 11 proceedings in Delaware. A February 2018 global settlement paved the way for approval of Takata’s Chapter 11 plan and the sale of the viable parts of its business to a competitor.

On the sovereign debt side, the firm represented Citigroup as paying agent for Argentine bonds in a high-profile litigation with Argentina over holdout creditors. The litigation concerned the enforceability of pari passu clauses in Argentina’s sovereign bond contracts, after a US court told Citibank not to pay other bondholders until the state had paid holdouts. Argentina had threatened to expropriate Citi’s local assets if it complied with the US court ruling.

Recent events

In July 2019, the firm waved goodbye to New York partner Michelle McGreal, who left for Clifford Chance after a decade at Davis Polk. But the firm has generally avoided the poaching spree that has affected many of its contemporaries in 2020. 

It promoted three new partners in New York during the research period and afterwards – Natasha Tsiouris, Angela Libby and Hilary Dengel –  and also elevated Christopher Robertson to counsel.

Tsiouris was part of a Davis Polk & Wardwell team that advised term loan lenders holding US$3.2 billion in claims on the restructuring of Panama-incorporated engineering company McDermott International. McDermott emerged from its pre-packaged Chapter 11 in Texas in July 2020, having sold its technology licensing subsidiary to pay off a DIP financing package.

Also in the US, the firm was appointed lead restructuring counsel to opioid producer Purdue Pharma in its infamous Chapter 11 proceedings filed in September 2019, through which it is seeking to settle more than 2,800 civil actions in what is the first governmental mass tort in US history. Davis Polk has been working on the matter since March 2018 and reached a settlement with around half the state plaintiffs which would see Purdue transfer its assets to a public benefit trust to help people with opioid addictions. The group’s former owners, the Sackler family, also agreed to contribute US$3 billion and to sell all of their international pharma interests in over 120 countries. As the GRR 100 was going to press, Davis Polk had managed to fight off attempts to lift the bankruptcy stay.

Other new instructions in the research period came from the foreign representative of crypto-currency exchange Cryptopia, in an emergency Chapter 15 application to recognise its New Zealand liquidation and access data stored on servers in the US in May 2019. Graulich led the team advising on this one, working alongside partner James McClammy and new partner Libby. A New York court granted the emergency recognition, preventing a US counterparty from terminating a contract that could have deleted the data and undermined the liquidation. In April 2020, the High Court of New Zealand became the first court in the world to rule that digital assets constitute property in the context of a liquidation, and that Cryptopia account holders should be treated as secured creditors.

Airline Aeroméxico tapped a team from the firm, comprising Graulich, McClammy and Huebner, to help it see through its Chapter 11 proceedings filed in June 2020. The firm also helped KPMG partners as the joint liquidators of Jamaica-headquartered telecoms group Digicel to get its Bermudian scheme of arrangement recognised in New York; the scheme became effective in June 2020 and will result in Digicel’s holding company being wound up.

Davis Polk also represented reinsurer Ballantyne Re and its foreign representative in a Chapter 15 application to have its Irish scheme recognised and enforced in the US; and the firm further oversaw the successful Chapter 15 recognition of Curaçao insurer ENNIA’s restructuring under emergency regulations, in the face of objections from a shareholder. This marked the first time that a Curaçao insolvency process was recognised in the US.

Davis Polk is also US counsel to Chinese coffee chain Luckin, which is being sued for fraudulent misrepresentation by subscribers to a tranche of New York law-governed convertible bonds issued in January after it was accused of overstating its 2019 sales volumes. The chain entered provisional liquidation in the Cayman Islands at its own application in July 2020.

Partners Bernstein, Graulich and Elliot Moskowitz in New York continue to advise lender HSBC in the international saga unfolding over industrial fishing group China Fishery’s valuable Peruvian anchovy business. In 2015, HSBC commenced insolvency proceedings against China Fishery in the Cayman Islands and Hong Kong, but it withdrew them after a successful challenge against the Hong Kong liquidators and agreed instead to a deed of undertaking that the group would sell its Peruvian business by July 2016. Instead of abiding by the deed, China Fishery filed a Chapter 11 case. HSBC is now defending a US$245 million adversary damages action by the Chapter 11 trustee for the Peruvian business, who accuses it of “unbridled overreach” in enforcing its interests. The Chapter 11 trustee recently sought recognition and assistance in Hong Kong, which was denied because the court said that the Chapter 11 action had been filed to avoid the deed. He is now appealing. The case has also seen proceedings in Peru, the BVI and Singapore.

Having overseen the US$4.5 billion restructuring of Odebrecht-owned oil group OOG – the largest extrajudicial restructuring in Brazil – and its Chapter 15 recognition, the firm has now been advising bondholders whose notes are guaranteed by another Odebrecht group entity, construction arm OEC, as it restructures US$3 billion in debt out of court. Odebrecht rejected a plan put forward by the bondholders in March 2019; but they entered into a memorandum of understanding the following September and Odebrecht placed the resulting plan before a São Paulo court in August 2020, following a consent solicitation process that received support from 60% of the bondholder group.

In another Brazilian matter, Davis Polk has been working for the indenture trustee of notes issued by Cayman Islands company Schahin II to fund the building of a Marshall Islands-flagged drill ship, the Sertão. Noteholders arrested the ship in the UK and the indenture trustee filed the first-ever Cayman scheme implementing a US$15 million DIP financing to carry out essential maintenance on the vessel. The scheme was granted full force and effect in the US under Chapter 15 in November 2018.

Finally, in April 2019, noteholders and lenders to Brazilian miner Samarco replaced their existing counsel with Davis Polk to assist with the restructuring of US$4 billion in funded debt. Samarco is still facing environmental regulatory, operations and financial headwinds as a result of a serious and fatal 2015 dam accident.

Client references

Rafael Rojo, head of non-profit group Bonistas del Patio, says that his team first encountered Davis Polk in the restructuring of the Government Development Bank of Puerto Rico, part of the territory’s major public debt overhaul. “Davis Polk was representing a consortium of hedge funds and we had a local counsel. Notwithstanding, we worked as a team and accomplished a very satisfactory debt restructuring,” Rojo says.

This experience persuaded Bonistas to engage Davis Polk for the restructuring of the Puerto Rico Sales Tax Financing Corporation, COFINA. This “was also carried out with great results,” Rojo notes. “The constructive nature of Davis Polk’s performance and ability to understand the different positions of stakeholders allowed them a unique approach to all involved parties in seeking consensual solutions,” he says. “This collaborative attitude was highly distinguishable to the many parties involved in this process.”

Rojo says that partners Brian Resnick and Bernstein both stood out: “Brian is extremely analytical and has a high level of understanding at macro and micro level, without losing focus of the bottom line. Don has wide understanding as well; his seniority and soft-spoken touch, along with his track record, add a lot of credibility to his views when trying to get a point across.”

Frauke Eßer, legal counsel for crises, insolvencies and antitrust at Volkswagen Group Purchasing, describes the Takata case as “of major importance for Volkswagen”. 

“We have never experienced a better law firm on the restructuring side. Their knowledge on economics and law provides substantive criteria to distinguish them from their competitors,” she says.

In particular, Eßer highlights New York partner Darren Klein, who is “not only a magnificent lawyer, but… has also studied economics at university and worked as an economic consultant for four years”. She describes him as “extremely smart, creative and an influencer”, and says that he helped Volkswagen to succeed in nearly all of its negotiations.

Graulich also gets the thumbs-up from VW: “Timothy is a real expert for cross-border cases and is very experienced in Japan and other jurisdictions.”