Friday 22 June 2018

Arcapita seeks US bankruptcy protection

Manama, March 19, 2012

Bahrain investment house Arcapita became the first Gulf entity to file for Chapter 11 bankruptcy protection in the United States, after it was threatened with legal action if it did not repay a hedge fund in full, three sources told Reuters.

Fortelus Capital Management, which holds 6 percent of a $1.1 billion facility which matures on March 28 and is at the centre of the filing, had been pressing for the last month for a timely repayment, the sources confirmed, along with the three other funds involved, two of them said.

"Fortelus was trying to get themselves paid out but it completely backfired on them," said one source working on the restructuring, speaking on condition of anonymity as the talks are private.

"They thought their pressure could get them paid out but it got us Chapter 11. It is a big mistake by Fortelus and they will now be waiting years for their money."     

Fortelus, a distressed debt investment fund, declined to comment when contacted by Reuters.   

Monday's filing, at the US Bankruptcy Court for the southern district of New York, shows the increased presence of hedge funds in Gulf restructurings and comes days after US-based fund, Monarch Alternative Capital, won a $45.5 million legal claim against Dubai's Drydocks World.

Funds are said to hold around 18 percent of Arcapita's $1.1 billion murabaha facility, according to a London-based source. A murabaha is a cost-plus-profit arrangement which complies with Islamic law.

While most restructurings in the Gulf region, such as Dubai World's $25 billion debt deal, have been bank-only affairs and have involved agreements for long extensions to maturity dates, hedge funds have fewer concerns about maintaining relationships for the longer term.

"They had no interest in a consensual process or extending the maturity of the loan and were demanding a full repayment," a third source involved in the talks said.

Arcapita's debt maturity had been regarded as one of the most challenging liabilities facing the region in 2012, given its poor cash position and the difficulty of selling assets in a volatile global market pounded by Europe's debt crisis.

The investment firm had $19.1 million in cash on its balance sheet at the end of September, according to the firm's last set of accounts. The bankruptcy filing pushed up the cost of insuring Bahraini sovereign debt against default for five years to 370 basis points, up 12 bps from Friday's close, according to data monitor Markit.

In announcing its filing, Arcapita blamed unnamed "non-bank creditors" for its inability to strike a deal on its proposal to delay repayments by three years.

"The actions of certain non-bank creditors have precluded Arcapita from reaching such a consensual resolution before the March 28 maturity date, jeopardising Arcapita's ability to satisfy its fiduciary duties to its stakeholders," chief executive Atif Abdulmalik said in a statement.

The filing, covering Arcapita Bank and several affiliates but none of its operating subsidiaries or portfolio companies, will allow for a comprehensive restructuring to take place that best suits creditors and other stakeholders, the firm said in the statement, adding no immediate asset sales were planned.

A proposal is due before the Manhattan court by July 17, a court document said. Most of its portfolio companies are based in the United States, according to its website, hence its Chapter 11 filing.

The Central Bank of Bahrain, in a separate statement, said it had supported the previous debt discussions and "desires to see an outcome which best preserves the interests of the bank and its creditors."     

The other four members of the creditor committee are Barclays, CIMB, Standard Bank and Royal Bank of Scotland, sources familiar with the matter told Reuters last week.  

Arcapita's legal advisors are Gibson Dunn & Crutcher and Linklaters, while its financial advisor is Rothschild, the statement said.

PricewaterhouseCoopers and Clifford Chance are working with the creditor committee, sources told Reuters last week. - Reuters

Tags: Gulf | hedge fund | Aracapita | chapter 11 | bankruptcy protection | Fortelus |

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