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June 1, 2021 – The Chapter 11 Trustee appointed to the Debtors’ cases has notified the Court that that no conforming indicative bids had been received for the equity interests of Debtor CFG Peru Singapore; effectively ending the Chapter 11 Trustee's efforts to market test the value of those equity interests [Docket No. 2527]. Absent any qualifying bids, a sale hearing provisionally scheduled for July 15, 2021 has been cancelled. Not cancelled is the Debtors' June 9th hearing to consider confirmation of the Creditor Plan Proponents’ (defined below) Plan will proceed as scheduled; that hearing would have been pushed back to at least June 29th had their been any qualified bidders.
In April, the Chapter 11 Trustee and the Creditor Plan Proponents struck a deal in respect of the almost 5-year old cases; with the Chapter 11 Trustee agreeing to drop its objections to the Creditor Plan Proponents' Plan if first given a chance to market the CFG Peru Singapore equity, albeit at a $995.0mn price (based on the amount that would make prepetition holders of the "Club Loans and Notes" whole) which may have pre-ordained an absence of qualified bidders.
On April 23, 2021, the Court hearing the China Fishery Group Limited cases issued an order approving proposed bidding procedure for the sale of substantially all of Debtor CFG Peru Singapore’s equity interests in CFGI (the “CFGI Equity Interests” and the “Sale,” respectively) [Docket No. 2443].
The proposed section 363 auction/sale process for the Debtors' Peruvian anchovy "crown jewels," reflected an agreement between (i) the "Creditor Plan Proponents" (Burlington Loan Management DAC and Monarch Alternative Capital LP, solely on behalf of certain advisory clients and related Entities that hold Claims) and (ii) the Chapter 11 Trustee assigned to the Debtors' cases to properly market test the value of the CFGI Equity Interests; with the Chapter 11 Trustee agreeing to drop its longstanding Plan objections and allow the Creditor Plan Proponents to proceed with their Plan in the event that sale efforts do not generate the $995.0mn (net of cash) proceeds sufficient to make prepetition holders of the "Club Loans and Notes" whole (the "Sale Threshold").
In addition to the $995.0mn opening mark for any qualified bids, bidding procedures include a $5.0mn minimum bid increment, with this amount keyed off of the baseline bid chosen by the Chapter 11 Trustee as the best of qualifying bids (if any).
On April 23rd, the Court hearing the China Fishery Group Limited cases issued an order approving (i) the Creditor Plan Proponents’ Disclosure Statement (filed on April 21st), (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a June 29th Plan confirmation hearing [Docket No. 2441].
Specifically, the Disclosure Statement provides, "The Chapter 11 Trustee intends to run a final formal bidding process for the sale of the CFGI equity interests. If a qualified bidder comes forward at a price sufficient to satisfy, inter alia, the Senior Notes Claims and Club Facility Lenders, the Creditor Plan Proponents will no longer seek confirmation of this Plan by the Bankruptcy Court. In such circumstances, Senior Notes Claims and Club Facility Lenders, as well as certain other Claims, would be paid in full in cash at closing."
If, however, the Sale Treshold is not reached (and a qualified bidder is not named), "the Chapter 11 Trustee would be supportive of pursuing the Creditor Plan Proponents’ Plan ….”
The Chapter 11 Trustee's bidding procedures motion [Docket No. 2409] reads, “The Debtor’s estate, and the estates of all Debtors in the above-captioned chapter 11 cases, are comprised almost entirely of their interests in two Peruvian operating companies, which are non-Debtor subsidiaries — CFG Investments S.A.C. (‘CFGI’) and Corporacion Pesquera Inca S.A.C. (‘Copeinca,’ and together with CFGI, the ‘Peruvian Opcos’). Together, CFGI and Copeinca operate the anchovy fishing business of the Pacific Andes Group (defined below) and control a significant percentage of the anchovy fishing quotas fixed by the Peruvian government. The Peruvian Opcos have repeatedly been acknowledged to be the ‘crown jewels’ of these chapter 11 cases.
The Creditor Plan Proponents have filed the Creditor Plan Proponents’ Plan (each as defined below) that provides for the equity of the Peruvian Opcos to be distributed to the holders of the Club Loans and Notes in exchange for their debt [we cover the Creditor Plan Proponents' Plan separately]. While the Chapter 11 Trustee is generally supportive of the Creditor Plan Proponents’ Plan and sees it as a positive development in this case, the Chapter 11 Trustee believes an attempt must be made to set a bid deadline to ensure there is neither a cash buyer for the CFGI Equity Interests nor additional value beyond the debt.
For purposes of the sale structure, the Chapter 11 Trustee seeks to sell the CFGI Equity Interests, which are CFG Peru Singapore’s direct equity interest in CFGI and indirect equity interests in several non-Debtor subsidiaries of CFGI, namely Copeinca. Given the potential renewed interest in the sale of the CFGI Equity Interests in light of recent developments discussed more fully below, the Chapter 11 Trustee believes that entry of the proposed Bidding Procedures will expedite the proposed bidding process (the ‘Sale Process’). The Bidding Procedures will provide the formal framework for the Sale Process, which has been designed to elicit value-maximizing bids for the CFGI Equity Interests.
Among other things, the Bidding Procedures (i) set forth the timeline for the Sale Process that is reasonable and appropriate to elicit value-maximizing bids for the CFGI Equity Interests and (ii) set forth the basic rules for submitting bids for the CFGI Equity Interests and the date for a potential Auction. The proposed Bidding Procedures comply with the requirements of the Bankruptcy Code, the Bankruptcy Rules, the Local Rules and the Sale Guidelines and therefore should be approved.”
Overview of Creditor Plan Proponents' Plan
The Disclosure Statement [Docket No. 2465] now reads: “In December 2020, the Ad Hoc Group presented a proposed restructuring support agreement to the Chapter 11 Trustee that contemplated the provision of a new money financing facility to the CF Group and an exchange of the Club Facility and Senior Notes for new notes and equity in CFGI. This proposal also was not accepted by the Chapter 11 Trustee.
Over the past several months, the Creditor Plan Proponents and their advisors have engaged in extensive diligence and negotiation regarding a potential restructuring transaction. The Creditor Plan Proponents’ efforts have borne fruit. On March 1, 2021, following several months of discussions regarding potential restructuring transactions, the Ad Hoc Group — comprised of holders of 56% of the principal amount of the Senior Notes and 71% of the principal amount of the Club Facility — executed the Restructuring Support Agreement… The Restructuring Support Agreement contemplates a comprehensive restructuring and recapitalization transaction for the Plan Debtors and certain of their non-debtor affiliates that will safeguard and provide funding for the fishmeal business of the Peruvian OpCos.
The material terms of the Plan are as follows:
- each Allowed Administrative Claim, Secured Claim and Other Priority Claim will be paid in full in Cash or receive such other treatment that renders such Claim Unimpaired;
- each Allowed Priority Tax Claim shall be treated in accordance with the terms set forth in section 1129(a)(9)(C) of the Bankruptcy Code;
- Chapter 11 Trustee Fee Claims shall be paid in the amount Allowed by the Bankruptcy Court;
- each Allowed Superpriority Loan Claim shall be set off, capitalized, forgiven or such other similar or equivalent mechanisms as required in a specific jurisdiction pursuant to the Superpriority Loan Settlement Order; provided that the Plan Administrator is authorized to cause SFR to transfer proceeds from the sale of non-core assets listed in the First and Second Non-Core Asset Sales Procedures Motions either directly or indirectly to CFG Peru to effectuate the SFR Distributions contemplated under the Plan promptly following the Confirmation Date;
- each Holder of an Allowed Senior Notes Claim shall receive the distributions to such Holder pursuant to the UK Proceeding and/or Singapore Scheme. Except as provided in Article IV.S of the Plan, on the Effective Date, all of the Senior Notes shall be cancelled as set forth in the UK Proceeding Documentation and/or Singapore Scheme Documentation, as applicable; provided, however, that any such distribution shall be in addition to any distributions made by the Plan Administrator or any other Entity with respect to the Interim Distribution;
- unless otherwise provided for under the Plan, each Holder of an Allowed General Unsecured Claim shall receive its pro rata share of the Wind-Down Trust Interests;
- each Holder of the BANA-CFG Peru Claim shall receive its pro rata share of $30,998,083.56 in Cash, which Cash shall be remitted by NewCo or the Peruvian OpCos;
- each Holder of an Allowed Club Facility Subordination Claim shall receive the distributions to such Holder pursuant to the UK Proceeding and/or Singapore Scheme;
- each Section 510(b) Claim shall be deemed cancelled and released without any distribution;
- Interests in CFG Peru shall be Reinstated as of the Effective Date or, at the Creditor Plan Proponents’ option, shall be cancelled. No distribution shall be made on account of any Interests in CFG Peru;
- Interests in Smart Group shall be Reinstated as of the Effective Date or, at the Creditor Plan Proponents’ option, shall be cancelled. No distribution shall be made on account of any Interests in Smart Group; and
- the Consenting Creditors and certain other parties will grant full, mutual releases as set forth in the Plan.
The Plan contemplates the following additional transactions (the ‘Transactions’) will occur pursuant to the UK Proceeding and/or Singapore Scheme in accordance with the terms of the Restructuring Support Agreement:
- a change in ownership of the Peruvian OpCos through a transfer of the equity in CFGI to NewCo;
- the recapitalization of the Peruvian OpCos through the provision of the committed $150 million New Money Facility (as defined in the Restructuring Support Agreement) to fund working capital and transaction costs. The New Money Facility will accrue cash interest at the rate of LIBOR plus 9% per annum and mature 10 years from the date of the drawdown of the New Money Facility (which is anticipated to occur on or around the Effective Date);
- the New Money Facility will be backstopped by certain Consenting Creditors that commit to backstop the New Money Facility on the terms and deadlines set forth in the Restructuring Support Agreement (collectively, the ‘Backstop Parties’). The Backstop Parties are entitled to a backstop commitment fee equal to 5% of their respective backstop commitments on the New Money Facility, payable in cash at the closing of the Transaction;
- the Club Facility and Senior Notes will be exchanged for $300 million of New Notes (as defined in the Restructuring Support Agreement) to be issued in a jurisdiction selected in accordance with the Restructuring Support Agreement. The New Notes will accrue cash interest at the rate of LIBOR plus 9% per annum and mature 10 years from the date of the closing of the Transaction;
- the debt structure of NewCo shall only include the New Money Facility and the New Notes;
- interests in the equity of NewCo and the New Notes shall be apportioned between Holders of Senior Notes Claims and Club Facility Lenders in accordance with the Agreed Participation; and
- the New Money Facility will rank senior as to right of payment and proceeds of enforcement of security to the New Notes, provided that payments in accordance with the terms of the New Notes will be permitted for so long as there are no defaults outstanding under the New Money Facility and otherwise in accordance with a customary intercreditor agreement between lenders of the New Money Facility and holders of the New Notes.
While the Plan and the Restructuring Support Agreement are key steps in the Plan Debtors’ restructuring, it is important to note that the Consenting Creditors have agreed to accept less than payment in full (in Cash or otherwise) to facilitate the Plan and Transaction. The Plan contemplates a comprehensive restructuring of Claims against and Interests in the Plan Debtors that the Creditor Plan Proponents believe will preserve the going-concern value of the Peruvian OpCos, maximize recoveries available to all constituents, provide for an equitable distribution to the Plan Debtors’ stakeholders and facilitate a conclusion to the Chapter 11 Cases. The Plan also facilitates the steps necessary to effectuate the UK Proceeding and/or Singapore Scheme, including through cooperation with the Peruvian OpCos. The Creditor Plan Proponents believe the Plan and Restructuring Support Agreement are significant achievements for the Plan Debtors and will maximize value for stakeholders.”
The bidding procedures motion further provides, “There have been significant positive developments achieved in these cases through the Chapter 11 Trustee’s efforts. First the Chapter 11 Trustee has achieved a settlement of the $156 million Hong Kong litigation that was brought by the provisional liquidators appointed to certain non-debtor Pacific Andes Group subsidiaries (the ‘FTI Liquidators’), clearing up concerns that a significant liability against CFGI might materialize and remain an obligation of the buyer.
Significantly also, the Chapter 11 Trustee and the Other Debtors have reached an agreement in principle to obtain various consents and approvals from the Other Debtors that are critical to any sale or restructuring transaction at the CFG Peru Singapore level. This agreement will not only pave the way for a smooth implementation of a transaction involving the assets of CFG Peru Singapore, which purchasers and creditors had expressed concerns about previously, but will facilitate the emergence of the Other Debtors from chapter 11 as well.
In light of the foregoing, and the successful resolution of several other significant obstacles standing in the way of a sale, the Chapter 11 Trustee seeks authority to pursue a final limited bidding process. Thereafter, the Chapter 11 Trustee would be supportive of pursuing the Creditor Plan Proponents’ Plan if no Qualified Bidder emerges.”
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