Justice Snowden Requests Further Evidence on Financial Advisor Fees, Updated Explanatory Statement in GPH Convening Scheme Hearing; Decision Expected Friday or Next Week

Relevant Items:
Company Skeleton
Practice Statement Letter

Global Ports Holding today appeared before Justice Snowden virtually in the English High Court for a convening meeting for its proposed scheme of arrangement. The Turkey-headquartered port operator is using the English law tool to amend its $250 million 8.125% senior unsecured notes due 2021.

The judge noted that he was not satisfied with the short notice of the scheme given by the group to its noteholders. He said that the short timeline, where the practice statement letter was given to noteholders only a few weeks before the convening hearing was not acceptable.

Further, the judge explained that the explanatory statement was wholly lacking as to the detail of the financial arrangements between a smaller group of noteholders and its financial advisor. The judge asked why there was no evidence on this point, particularly as there was a success fee payable with respect to the advice given.

He indicated that he could allow the scheme to proceed, with the caveat that any dissenting creditors could later make submissions and potentially challenge on the basis of short notice at the sanction hearing, without prejudice. He further requested that he be provided with evidence in respect of the financial advisor fees.

GPH is expected to make amendments to the explanatory plan, reflecting that if there were dissenting creditors, they could later make submissions at the group’s sanction hearing. The parties are expected to return to court either on Friday, Feb. 5, or Monday, Feb. 8, when the judge will provide an order allowing GPH to proceed with the scheme.

The judge questioned how long the company has been negotiating with its ad hoc group of creditors before the launch of the scheme. Tom Smith, QC representing the company, explained that there had not been extensive contact before the scheme and that engagement with creditors had started when the scheme proposal was launched.

It was explained by Smith QC that there was still no lockup agreement in place in respect of the deal and that noteholders could still propose modifications to the deal. In fact, some noteholders had proposed modifications to the deal today morning. Significant modifications to the deal would require the group to return to the court.

This means that the group does not know if it has support from the 75% of noteholders required to pass the scheme at the creditors’ voting meeting. The scheme meeting is scheduled for March 10 and the sanction hearing on March 12.

A 1% early bird fee would be paid to consenting noteholders who agreed to the scheme before Feb. 19, but that deadline could be extended.

As part of the steps taken before the scheme, the scheme company, Port Finance Investment Ltd. (which is incorporated in England) acceded as a guarantor obligor to the notes to assist the group in passing the jurisdictional hurdles of using the scheme tool. Justice Snowden noted that this step had been taken so that the group could show sufficient connection to the English jurisdiction.

The judge noted that the scheme company had no other purpose other than to show sufficient connection to the New York law governed notes. He explained that he would need to see evidence from a New York law expert that the accession of the scheme company to the group’s notes was effective. Smith QC explained that an opinion on New York law and the effectiveness of the accession would be provided at the sanction hearing by a New York law expert.

Smith QC, in his submissions, explained to the court the background of the company and the effect that the Covid-19 pandemic has had on the group’s trading. It was explained that there was no other party present intending to address the court at today’s hearing.

The issuer of the notes is GLI, a Turkish subsidiary of Global Ports Holding. The scheme company and GLI entered into a deed of contribution pursuant to which the scheme company has agreed to pay any amounts due by GLI in respect of the notes as a guarantor, such that the relevant obligation shall be split on an equal basis between the scheme company and GLI (on a joint and several basis as primary obligors).

The sanction hearing for the scheme is expected to take place on March 12 and there is a 1% consent fee for noteholders who confirm they will vote in favor of the scheme by the early bird deadline.

Smith QC noted that the group had received $85 million from the disposal of shares in Port Akdeniz-Antalya to an unaffiliated third party. As explained below, the proceeds would be granted as a “cash option” to noteholders after a reverse Dutch Auction process.

The judge explained that there was a cash option, which could be actioned before March 9, before the scheme was implemented. He questioned why creditors had to exercise the cash option before the scheme was implemented, as it would be difficult for a holder to put a price on the debt being offered, given they would not know how the scheme would pan out. The matter however fell away as the judge concluded that he could not form a theoretical class of creditor for whom this would be an issue.

In the alternative to the scheme proposed, Smith QC explained that it is estimated that there would be an orderly sale which would result in a recovery to noteholders of between 59% to 70% of their claims.

There will be just a single class of creditors (being the group’s noteholders) voting on the scheme, with the early bird 1% fee not causing any class composition issues.

Matters of jurisdiction will be decided on at the sanction hearing. The judge noted that post Brexit, the EU Judgments Regulation (Regulation (EU) No. 1215/2012) no longer applies to proceedings commenced in the U.K. after Dec. 31, 2020. The English court is therefore no longer bound to consider whether the EU Judgments Regulation applies to the court's jurisdiction in relation to schemes.

However, the group will seek recognition in the U.S. as a foreign main proceeding under chapter 15 of the U.S. Bankruptcy Code. Further, it will seek an opinion from an independent expert that the scheme will be recognized in Turkey.

The Restructuring

The capital structure of the group before the scheme principally comprises:

• $250 million 8.125% senior unsecured notes due 2021;


• $125 million 8% unsecured notes due 2040 issued by Nassau Cruise Port Ltd; and


• Additional project finance and working capital facilities incurred partially by GLI in an aggregate principal amount of $105.3 million (equivalent) as of Dec. 31, 2020 (this debt does not include the indebtedness of Port Akdeniz).

The primary objectives of the scheme are:

• To extend the existing notes maturity date to May 14, 2024, from Nov. 14, 2021, by way of exchange;


• To compromise the claims of noteholders in exchange for new notes, which will bear interest at a lower rate than the existing notes, allow the group to pay interest in kind for a limited period post-issuance, and include certain other changes to the covenants and conditions therein relative to the existing notes; and


• To apply certain proceeds from the disposition of Port Akdeniz to the reduction of debt under the new notes. In October 2020, the group entered into a definitive agreement with QTerminal WLL with respect to the sale of its shares in Port Akdeniz. Upon completion of the disposition, Port Akdeniz's guarantee of the $250 million existing notes will be released.

The reverse Dutch auction process will work as follows.

1. Noteholders will be able to elect to participate in the cash option, and may elect how much of their new notes entitlement they wish to tender (in increments of US$1000).


2. Prospective participants in the cash option may also specify an offer price in the rate US$800 to US$1000 of the principal amount of its new notes entitlement.


3. The New Issuer will identify the clearing price, which is the lowest offer price that enables the New Issuer to utilize, as fully as possible, the cash option consideration.


4. The New Issuer will accept tenders from noteholders that have tendered at or below the clearing price, in the order of the lowest to highest offer price.


5. All noteholders who participate in the cash option will be paid out at the same clearing price.

As part of the restructuring deal, a new holding company will be incorporated under the laws of England & Wales, having shares that are 100% owned by Global Ports Holding. This new holding company will be the issuer of the new notes. The scheme proposes to exchange the existing notes on a dollar-for-dollar basis for the new notes.

On Dec. 31, 2020, the UK-EU Trade and Cooperation Agreement came into effect, implementing the withdrawal of the U.K. from the EU and the European Atomic Energy Community. As a result, the EU Judgments Regulation (Regulation (EU) No. 1215/2012) no longer applies to proceedings commenced in the U.K. after Dec. 31, 2020, (the PSL incorrectly states this date as Dec. 31, 2021).

The English court is therefore no longer bound to consider whether the EU Judgments Regulation applies to the court's jurisdiction in relation to schemes.

The group will seek recognition in the U.S. as a foreign main proceeding under chapter 15 of the U.S. Bankruptcy Code. Further, it will seek an opinion from an independent expert that the scheme will be recognized in Turkey.

The key features of the new notes, as they differ from the existing notes, are as follows:

1. The new notes will be issued in an aggregate principal amount equal to the outstanding existing notes (subject to reduction in accordance with the cash option).


2. The new notes will be governed by New York law and issued by a newly-incorporated holding company under the laws of England & Wales. The new issuer will be a wholly owned subsidiary of GPH and, within 90 days of the refinancing effective time, will own 100% of the shares of GLI.


3. The maturity date will be extended to May 14, 2024, from Nov. 14, 2021 (under the existing notes).


4. For any interest falling due on or prior to May 14, 2022, the new issuer will have the ability to pay part or all of the interest due on the new notes in kind, subject to certain conditions.


5. PIK interest is proposed to be 8% per annum.


6. Any interest falling due after May 14, 2022, shall be paid in cash. GIH will provide a commitment to GPH and the new issuer to provide subordinated shareholder debt to cover any shortfall in cash interest required to be paid by the new issuer in 2022 under the Amended Indenture. Cash interest is proposed to be 6.50% per annum.


7. Where the new issuer pays cash interest, there is provision for the new issuer to use certain additional cash to make an offer to all holders of the new notes to repurchase all or part of such holders’ new notes. The price will be 100% of the principal amount plus accrued and unpaid interest and additional amounts, if any, to the date of repurchase.


8. The amended indenture will provide for certain covenants to maximize the distributions from nominated subsidiaries within the group.


9. No later than 90 days after the scheme becomes effective, GPH will distribute or otherwise transfer GLI and its subsidiaries to the new issuer, so that GLI will become a direct subsidiary of the new issuer (the “new issuer reorganization”). In addition, GPH, the New Issuer and GLI will use commercially reasonable efforts to distribute or otherwise transfer GLI’s investments in its non-Turkish operating subsidiaries to the New Issuer, so that GLI’s international operating subsidiaries will be directly or indirectly held by the new issuer.


10. The new notes will be guaranteed on a senior secured basis by Ege Liman, GPH, the scheme company and GLI (together with any other guarantors that subsequently accede to the Amended Indenture). Further, no later than three business days following the consummation of the new issuer reorganization, the new notes and the new guarantees will be secured by a pledge over the shares of the new issuer.