march 7, 2012
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U.S. Chapter 11: What Everyone Should Know Hal Malone Jefferies Maritime Group. March 7, 2012. Jefferies & Company, Inc. Key U.S. Bankruptcy Provisions: Chapter 7, Chapter 11 and Chapter 15. U.S. Bankruptcy Process (Chapter 11) is Available to Non-U.S. Companies. - PowerPoint PPT PresentationTRANSCRIPT
March 7, 2012
U.S. Chapter 11:What Everyone Should KnowHal MaloneJefferies Maritime Group
Jefferies & Company, Inc.
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Key U.S. Bankruptcy Provisions:Chapter 7, Chapter 11 and Chapter 15
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U.S. Bankruptcy Process (Chapter 11) is Available to Non-U.S. Companies
Many market participants believe Chapter 11 only applicable to U.S. listed or U.S. based companies
Recent experiences of Omega Navigation and Marco Polo demonstrate that Chapter 11 is an option for most international shipping companies
Chapter 11 keeps companies afloat as operating entities while eliminating unattractive contracts and restructuring debts
Management / board receives initial 120 day period to file reorg plan
Automatic global stay preventing creditor action
Bankruptcy process can be good for both companies and creditors
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Key Terms / Concepts
Global Automatic Stay
Exclusivity Period
Debtor-in-Possession (“DIP”) Financing
Use of Cash Collateral
Cash Collateral Budget
Adequate Protection
Plan of Reorganization
Pre-Packaged Plan
Consensual Plan
“Cramdown” Plan
Impaired Consenting Class
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Key Benefits to Companies of U.S. Chapter 11
Company has exclusive right to file a plan of reorganization
Management generally remains in control during the process
Additional financing is often made available in the form of a debtor-in-possession (“DIP”) facility
Company can reject unprofitable contracts
Company can force counterparties to honor attractive contracts even if language provides for cancellation in bankruptcy
Ability to bind minority in a class vote (i.e. requires 2/3 of similarly situated creditors instead of 100%)
Ability to sell certain assets or the entire business free and clear of all liens
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Key Benefits to Creditors of U.S. Chapter 11
Transparent process with access to material company information
Right to seek adequate protection of collateral / assets
Ability to bind hold-out creditors (i.e. requires majority or 2/3 of similarly situated creditors instead of 100%)
Aggressive enforcement of global stay means trade creditors will not arrest ships
Ability to eliminate leakage to junior constituents and eliminate unprofitable contracts
Specific cases where creditors may want to use Chapter 11:
Above market charters-in
Subordinated sellers’ credit
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Chapter 11 Drawbacks
Expensive for all parties
Creates uncertainty as to outcome
Can be lengthy and time consuming process
Highly public, which may impact market perceptions of company
Can encourage adversarial / litigious behavior
Potential to add additional parties to complicated negotiations
May allow external parties to influence results
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Benefits of Pre-Packaged vs. Freefall Chapter 11
Preserves enterprise value proactively
Quicker, less disruptive and cheaper than freefall Chapter 11
Process could be completed as quickly as 45 days after a filing
Predetermined outcome reduces “bankruptcy taint”
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New Investor / Capital Provider Perspectives
Investors are keen to enter the sector
Creditors not aggressively calling defaults currently as they do not want to be shipowners
However, creditors will begin seizing vessels as asset values rise, thereby capturing upside
New investors may treat management favorably, including potentially management carried interest in profits
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Reality Bites…
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Jefferies Key Points of Contact
Maritime Group
Hamish Norton (Global Head of Maritime Group) [email protected] +1 (212) 323-3330
Harold Malone (Senior Vice President) [email protected] +1 (212) 284-4691
Restructuring & Recapitalization Group
Steven Strom (Global Head of Restructuring & Recapitalization Group) [email protected] +1 (212) 284-4688
Tero Jänne (Managing Director) [email protected] +1 (212) 284-1723
