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December 23, 2021 – Since the start of the COVID-19 pandemic, many foreign companies facing financial difficulties caused or exacerbated by the pandemic have used the U.S. bankruptcy system to restructure. While many companies felt the effects of the pandemic more acutely, requiring Chapter 11 filings in 2020, a number of large international companies did not apply for Chapter 11 protection until 2021. This The article highlights some of the major US restructurings of international companies over the past year.
On December 8, 2021, just six weeks after filing a Chapter 11 claim with the U.S. Bankruptcy Court for the Southern District of New York, Grupo Posadas SAB de CV, Mexico’s largest hotel operator, obtained confirmation from its prepackaged plan for chapter 11. The company operates in both hotel management and holiday club sectors.
COVID-19 has had a significant effect on the hospitality industry, which has been negatively impacted by general consumer sentiment, and further exacerbated by government-imposed closures that have forced hotels to close. Even after the blockages were lifted, many hotels continued to operate at reduced capacity and / or with reduced amenities. This had a significant impact on the operations and profits of Grupo Posadas.
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Prior to the Chapter 11 filing, Grupo Posadas SAB de CV entered into a restructuring support agreement with an ad hoc group of bondholders to address the maturity wall the company is facing on its some 400 million euros. dollars in unsecured principal maturing in 2022 by securing the debt and extending the maturity date of the bonds until 2027. The Restructuring Support Agreement was initially backed by 34% of the banknotes in circulation, and the company eventually obtained the support of holders of approximately 66.66% of the banknotes in circulation prior to deposit.
Grupo Posadas’ Chapter 11 prepackaged plan allowed it to restructure its debt, while having minimal impact on its operations given the short duration of bankruptcy and the company’s ability to continue to operate normally throughout. the bankruptcy case.
Chapter 11 prepackaged cases, like the one employed by Grupo Posadas, allow the company to limit its time to Chapter 11 – in this case only six weeks and in other cases less than a day. In addition, Grupo Posadas was able to ensure that all other stakeholders, including its existing listed shares and all unsecured creditors in general, could resolve the Chapter 11 case smoothly.
Earlier this year, Automores Gildemester SpA, a Chile-based vehicle importer and distributor operating primarily in Chile and Peru, filed a prepackaged Chapter 11 dossier after experiencing financial hardship due to various factors including the pandemic and the macroeconomic conditions the company said it had has resulted in lower consumer confidence in the markets in which it operates. Less than two months later, Automores Gildemester confirmed a Chapter 11 plan that helped the company restructure more than $ 500 million in pre-petition-funded debt.
Philippine Airlines Inc., the only full-service airline in the Philippines struggling with the pandemic’s prolonged impact on air travel, filed for Chapter 11 in September and confirmed a full reorganization plan. consensus on December 17. 40 different restructuring agreements with various key creditors.
Faced with liquidity problems by the end of 2021, Alto Maipo SpA, a special purpose company based in Chile and formed to develop, build and operate a hydroelectric power project in Chile, has filed a complaint under the chapter 11 in November. Among other factors, the pandemic caused unexpected delays in construction, straining the project budget.
Alto Maipo recently filed an amended Restructuring Support Agreement attesting to holder support of approximately 78% of the company’s senior secured lenders. As one of the milestones the company has agreed to with the providers of its debtor financing in possession, the company will have a Chapter 11 plan confirmed by May 18, 2022.
Other large international companies that filed for Chapter 11 in 2021 include: Stoneway Capital Corporation, an Argentinian electricity company; and Alpha Latam Management, LLC (a Delaware entity) and some of its Colombian subsidiaries that operate a specialized finance business providing loan services to consumers and small businesses in Colombia (the other subsidiaries operating in Mexico have not filed files under Chapter 11).
Foreign companies are drawn to the main advantages offered by the US Bankruptcy Code. Perhaps more importantly, there is a worldwide stay of actions against the debtor while a Chapter 11 case is pending; and management generally retains control of the company, unlike many jurisdictions where a liquidator is appointed. U.S. and foreign companies facing financial difficulties should consider whether a Chapter 11 affair (or its threat) can help them adjust their balance sheets.
A foreign entity needs only minimal ties to the United States to receive relief under its bankruptcy laws. Section 109 of the Bankruptcy Code provides that âonly a person who resides or has a domicile, place of business or property in the United States, or in a municipality may be a debtor.â The property requirements under Section 109 has proven relatively easy to meet, making bankruptcy protection in the United States a viable option for many companies incorporated elsewhere, even if they have little or no business activity in the United States. United.
Minimal or intangible property in the United States can serve as a âpassportâ to a foreign entity for bankruptcy in the United States, because the Bankruptcy Code does not specify any minimum amount or threshold. Courts (including in New York) have ruled that US de minimis properties meet the eligibility criteria. Bank accounts with even low balances have served as a simple and common means of satisfying Section 109 (a). Fees paid to professionals (for example, lawyers and financial advisers) can also form a basis of competence. Intangible assets have also been validated, including claims or causes of action against US entities or property.
Additionally, Chapter 11 can be a viable and effective restructuring tool for foreign entities with U.S. creditors, such as secured credit lenders and bondholders, who must comply with U.S. court orders.
In addition, filing for bankruptcy in the United States may provide a foreign entity with several other advantages (depending on the laws applicable in the entity’s host country), including the global scope of the automatic suspension, the lack of insolvency requirement, the ability of existing management to remain in place, and the potential use of a pre-established or pre-established reorganization plan to complete a rapid and efficient restructuring of the balance sheet. Even the threat of US bankruptcy can convince reluctant parties to negotiate an amicable restructuring.
It is important to note, however, that a foreign debtor will only benefit from a US bankruptcy if the bankruptcy court orders are enforceable against the debtor’s creditors or are recognized in foreign jurisdictions. For a U.S. bankruptcy filing to be a viable option, creditors must be subject to U.S. jurisdiction and therefore not be willing to violate a U.S. court order for fear of sanctions or other penalties. Additionally, some foreign jurisdictions may recognize and give effect to U.S. orders in their jurisdiction.
Foreign entities that continue to fight the impact of the COVID-19 pandemic can, and in many cases should, use the sophisticated and debtor-friendly reorganization laws of the United States to help them resolve their business problems.
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