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July 18, 2014

Kramer Levin Successfully Navigates Genco Shipping & Trading Through Complex “Pre-Pack” Restructuring

When Genco Shipping & Trading (“Genco”) navigated its international dry bulk shipping company through a $1.4 billion restructuring, it turned to Kramer Levin to steer the legal process. Pulling together resources from various parts of the firm, the Kramer Levin team, working closely with management and the company’s financial advisor, developed and negotiated a comprehensive agreement that consensually restructured three separate secured loan facilities (aggregating $1.3 billion) and a $125 million unsecured convertible note facility. Through a Restructuring Support Agreement – negotiated over a three-month period, often with the threat of expiring forbearance agreements and a free-fall bankruptcy looming over the company – Genco obtained support from over 25 sophisticated financial investors and banks to (i) convert over $1 billion of secured debt into new equity, (ii) amend and restate the maturity and key covenants of two separate bank loan facilities aggregating $250 million, and (iii) convert $125 million of convertible notes into new equity. These negotiations also resulted in a voluntary agreement to leave all other unsecured creditors (including trade) unimpaired and make a gift of new warrants to the then-existing equity holders – even though the company was insolvent.

The pre-bankruptcy negotiations were so successful that Genco was able to commence a true “pre-packaged” Chapter 11 case for itself and 57 affiliates to implement its restructuring. The pre-bankruptcy negotiations were complicated by the “convertible” nature of the unsecured bonds, which necessitated careful analysis of the exchange of debt for equity process. Following a successful pre-bankruptcy solicitation, Genco and its affiliated debtors filed for bankruptcy on April 21, 2014 in the Southern District of New York.

Despite the company’s insolvency, a small group of institutional investors purchased a material portion of Genco’s stock shortly prior to (and even after) the bankruptcy case was filed and formed an official “Equity Committee,” thereby starting a hotly-contested valuation fight. With only a minimal 30-day slippage to the agreed upon bankruptcy milestones, the Kramer Levin team undertook a significant bankruptcy valuation battle, which included over 100,000 pages produced, 20 witnesses deposed in two-weeks, and a four-day trial spanning a three-week period. The team prevailed on all counts and the bankruptcy court overruled the Equity Committee’s objections, finding that Genco was insolvent using various methodologies, including an industry-specific Net Asset Value – an approach that has previously not been adopted by any court. Kramer Levin’s successful valuation litigation resulted in confirmation of the prepackaged Chapter 11 plan in less than 3 months – a huge success for any prepackaged case, let alone one that was hotly contested and litigated applying novel valuation methodologies.

The Kramer Levin team on this matter included corporate restructuring partners Kenneth H. Eckstein, Adam C. Rogoff and P. Bradley O’Neill; litigation partners Philip S. Kaufman, Jeffrey Trachtman and Alan Friedman; corporate partners Thomas E. Molner, David J. Fisher, and Abbe L. Dienstag; litigation special counsel Natan Hamerman; corporate special counsel Randal D. Murdock, corporate restructuring special counsel Elise S. Frejka; tax special counsel Blake A. Rigel; corporate restructuring associates Anupama Yerramalli, Andrew M. Dove, Rachael Ringer, Stephen M. Blank, Mary-Kathryn Guccion and Shai Schmidt; corporate restructuring and bankruptcy law clerk David Mayo; litigation associates Jeremy W. Shweder, Brittlynn H. Burns, Nicole Foley, Emily S. Tabak, Adina C. Levine, Jessica Witte, and Hanna Seifert; and corporate associates Jeffrey Taylor, Serena G. Granger, Elizabeth Collins, Matthew Melville and Michael Brooks; tax associate Jason Tomitz; corporate restructuring paralegals Andrea Chouprouta, Bryon Becker, and Deborah Bessner; and litigation paralegals Santo Cipolla, Dawn Tatz, and Dana Holton.

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