EuroResource—Deals and Debt
Recent Developments
Germany—On 10 March 2015, the German Finance Ministry published a proposal for legislative changes to the German Banking Act (Kreditwesengesetz) that would amend the priority of creditor claims if a bank becomes insolvent. According to the draft bill, certain types of unsecured claims against "credit institutions", as defined by the European Union capital requirement regulation (so-called CRR institutions), are subordinated in the event the bank concerned becomes insolvent. With the "bailing-in" of certain categories of claims, the legislation would subordinate the claims of senior unsecured bondholders to other unsecured claims, including claims based on unsecured deposits, derivatives and certain structured bonds that have been combined with derivatives. The purpose of the proposed German legislation is to implement an EU resolution providing that creditors shall be required to bear losses equivalent to eight percent of a bank's liabilities before governmental rescue funds are made available. The change is designed to increase the stability of the financial system and aims to augment efficient creditor participation in banking rescues. Due to the narrow category of creditor claims affected by the measure, write-downs by creditors should be foreseeable, at least to some extent, and the risk of any domino effect should be limited. The new law would apply retroactively.
Canada, the US and the UK—On 12 May 2015, the US and Canadian courts presiding over the bankruptcy cases of Nortel Networks Inc. and its affiliates ("Nortel") handed down long-awaited rulings regarding the division among creditors of US$7.3 billion in proceeds realised from Nortel's liquidation. In separate rulings, US Bankruptcy Judge Kevin Gross and Justice Frank J.C. Newbould of the Ontario Superior Court of Justice, following a 21-day cross-border trial, decided on a modified pro rata allocation among Nortel's Canadian, US and European units. The formula presented by the judges in their rulings would result in all creditors receiving approximately 71 percent of the face amount of their claims. Nortel's regional divisions and other parties offered widely divergent proposals for allocating the proceeds generated by a series of post-bankruptcy deals, including a US$4.5 billion patent sale. Nortel's Canadian unit argued that it should receive approximately US$6 billion (roughly 82.2 percent of proceeds) because it held legal title to the patents involved. Nortel's US division claimed that it was entitled to approximately US$5.3 billion (72.6 percent) because it contributed most of the valuable assets that were sold, including exclusive US patent licences. The European units argued that they should be paid more than US$1.3 billion (18.2 percent). In his lengthy allocation trial opinion, Judge Gross noted that the varying proposals left nearly no virtual ground between the parties, which spent more than US$1.3 billion in attorneys' fees during the course of the six-year proceedings. Judge Gross wrote that "The court can only speculate why the parties, all represented by the ablest of lawyers and sparing no expense, were unable to reach a settlement on allocation". The sentiment was echoed by Justice Newbould in his 97-page ruling. The rulings divide Nortel's assets by region only, rather than allocating funds to specific creditors. According to Judge Gross, "It is now the parties who have to make a decision: accept the courts' rulings and give them effect, take appeals and thereby prolong the hardship and deplete the remaining estate, or utilize the courts' rulings to resolve any remaining differences".
On 26 May 2015, Nortel, joined by the official creditors' committee appointed in its chapter 11 cases, asked Judge Gross to reconsider the allocation methodology, claiming that the allocation treats Nortel's US general unsecured creditors unfairly. Overall, Nortel argued, although US creditors stand to recover the most out of any of the three groups—approximately US$3.3 billion from the sale of Nortel's patent portfolio and nearly US$2 billion from the sale of the remainder of its business assets—US creditors stand to recover only 14 cents on the dollar for their claims compared with 47 and 48 cents on the dollar for Canadian and European creditors respectively.
On 21 May 2015, Judge Gross also denied a request by an ad hoc committee representing 170 former employees of Nortel's Canadian unit for permission to file claims for US$18 million in severance payments in Nortel's US bankruptcy case on behalf of the employees more than three years after the 30 September 2009 bar date for submitting claims expired. See In re Nortel Networks, Inc., No. 09-10138 (KG), 2015 BL 161166 (Bankr. D. Del. May 21, 2015). In his ruling, Judge Gross wrote that "the Published Notice met the requirements of due process with respect to the Canadian Employees and their failure to timely file proofs of claim in the U.S. proceedings was not the result of excusable neglect".
Argentina—On 6 April 2015, the Republic of Argentina appealed a 12 March 2015 order of the US District Court for the Southern District of New York that blocked Citibank NA ("Citibank") from processing scheduled interest payments on US$2.3 billion of Argentine-law governed bonds issued as part of 2005 and 2010 debt restructurings. Argentina's notice of appeal argues that the 12 March 2015 order improperly extended a 2012 injunction that barred Argentina from making interest payments on restructured bonds without also paying amounts owed to holdout bondholders. However, on 20 March 2015, US District Judge Thomas Griesa approved a stipulation between Argentina's holdout bondholders and Citibank that conditionally authorised Citibank's Argentine branch to make interest payments scheduled for 31 March 2015 and 30 June 2015 on the Argentine law bonds. The judge also authorised Citibank to exit its custody business in Argentina.
On 7 April 2015, Argentina asked Judge Griesa to hear a group of eight class actions filed by certain holders of the country's defaulted debt separately from the lawsuits brought by hedge fund holdouts who acquired their bonds at a discount after Argentina defaulted on its debt in 2001. Argentina asked Judge Griesa to deny a request by the non-hedge fund classes to consider their cases along with dozens of what are referred to in the bond dispute as "me-too" cases. Both bondholder groups are seeking the benefit of Judge Griesa's 2012 rulings blocking Argentina from paying holders of its restructured debt until it pays US$1.7 billion owed to the hedge fund holdouts.
On 7 April 2015, the US Court of Appeals for the Second Circuit dismissed an appeal by Argentina of Judge Griesa's 3 October 2014 order holding the South American nation in contempt for violating his 2012 injunction preventing the country from making payments on restructured bonds without making corresponding payments to holdout bondholders. A two-judge Second Circuit panel dismissed the appeal for lack of jurisdiction, writing that "We conclude that a final order has not been issued by the district court … and the collateral order doctrine does not apply to this appeal".
Argentina's Economy Minister Axel Kicillof announced on 8 April 2015 that the Argentine government will seek an injunction against Citibank in local Argentine courts for its role in the 20 March 2015 agreement between Citibank and holdout bondholders to permit certain one-time payments on Argentine law bonds, enabling Citibank to wind down its operations in Argentina without violating Judge Griesa's orders. Kicillof, however, provided few details with respect to the nature of the charges and the court in which the government will pursue its case.
On 20 April 2015, Argentina announced that, in an effort to evade US restrictions on its market access, Argentina would issue US$500 million of a new series of "BONAR 2024" bonds paying an interest rate of 8.75 percent and maturing in nine years. On 22 April 2015, Judge Griesa ruled that the holdout bondholders suing Argentina are entitled to disclosure of the details of the BONAR 24 bond offering. Judge Griesa held that the hedge fund holdouts can seek documents from Argentina and banks subscribing to the offering, including Deutsche Bank AG and Banco Bilbao Vizcaya Argentaria SA, related to the 21 April 2015 US$1.4 billion bond sale to determine if any assets exist in the United States that could satisfy billions of dollars in unpaid judgments against Argentina.
On 11 May 2015, holdout bondholders filed a motion with the US District Court for the Southern District of New York to amend their complaint against Argentina to include US$5.3 billion in BONAR 2024 bonds issued by the republic in April 2015. The amendment would bring this latest bond offering into the ongoing battle before Judge Griesa concerning the validity of the pari passu, or "equal treatment", clause that, according to Judge Griesa's 2012 ruling, prevents Argentina from making payments on restructured bonds without making corresponding payments to holdout bondholders. Argentina's Ministry of Economy later responded to the action taken by holdout bondholders, asserting that the BONAR 2024 bonds constitute domestic debt denominated in foreign currency, which has nothing to do with the jurisdiction of Judge Griesa. He also accused the holdouts of seeking to generate "uncertainty in the market to harm the Republic and the bondholders" or creditors with exposure to exchanged debt.
The government of Argentina disclosed on 18 May 2015 that one of the republic's federal administrative courts granted an injunction requested by the Ministry of Economy and Public Finance and ordered Citibank's Argentina branch to "refrain from any act" intended to fulfill the 20 March 2015 agreement between the New York-based bank and holdout bondholders. Among other things, the Argentine federal court ordered Citibank's Argentine branch to refrain from making decisions that could result in the bank exiting from its custody business in Argentina. According to the court, Citibank failed to satisfy the requirements of Argentina's Codigo Procesal to validate the agreement approved by Judge Griesa.
On 5 June 2015, Judge Griesa granted partial summary judgment to a group of 526 "me-too" plaintiffs in 36 separate lawsuits, finding that, consistent with his previous ruling in litigation commenced by a group of holdout bondholders led by NML Capital Ltd., Argentina violated a pari passu clause in bonds issued to the "me-too" bondholders under a Fiscal Agency Agreement beginning in 1994 by refusing to make payments on their bonds at the same time that it paid holders of debt restructured in 2005 and 2010. See Guibelalde v. The Republic of Argentina, No. 11 civ. 4908 (TPG), 2015 BL 179208 (S.D.N.Y. June 5, 2015). The decision obligates Argentina to pay the plaintiffs US$5.4 billion before it can make payments on restructured debt.
Newsworthy
Jones Day represented Cellectis S.A., a French biotechnology company that is developing novel cancer treatments, in connection with its initial public offering in the United States and its Nasdaq listing. The US$228 million offering is one of the largest IPOs in the biotechnology industry.
Jones Day advised Trafigura Beheer B.V., one of the largest physical commodities trading groups in the world, in connection with its offering of €550 million 5.0% guaranteed notes due 2020 listed on the Irish Stock Exchange. The deal is Trafigura's second issuance under its Euro Medium-Term Note (EMTN) programme.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.
