NEW YORK, July 2014 – Genco Shipping & Trading Ltd. (with its subsidiaries, “Genco”) is one of the largest dry bulk shipping companies in the world, with a modern fleet of 53 vessels. Milbank represented the secured creditors under a $1.2 billion secured credit facility. Genco encountered severe liquidity issues as a result of a global downturn in shipping rates, leaving it unable to service its massive debt load. This historic downturn also resulted in a drastic decline in the value of Genco’s fleet, leaving Genco’s secured creditors underwater. Milbank negotiated a comprehensive restructuring transaction under which the lenders under the $1.2 billion facility (including several leading distressed investment funds) would receive more than 80% of the common stock in a reorganized Genco as well as the right to purchase an additional 7% in a fully backstopped rights offering. The transaction also provided for general unsecured creditors to be paid in full and for old equity holders to receive out of the money warrants. This transaction was implemented through a restructuring support agreement and a prepackaged plan of reorganization.
The Lenders who committed to the restructuring support agreement would receive a unique $26.5 million termination fee based on the amount of secured debt that they were converting to equity. Judge Lane of the United States Bankruptcy Court for the Southern District of New York approved Genco’s assumption of the restructuring support agreement (and approval of the termination fee) in a published opinion. Subsequent to the announcement of the transaction, several hedge funds bought old Genco equity and began a campaign to sink the proposed restructuring. This culminated in a contested valuation fight spanning six trial days at the hearing to confirm the prepackaged plan. In another published opinion, Judge Lane rejected the equity holders’ valuation assertions and upheld the valuation supported by Milbank and its clients. Specifically, Judge Lane held that a discounted cash flow (although often touted as the “gold standard” of valuation) is not an appropriate way to value a company in a volatile industry such as international dry bulk shipping. Judge Lane further rejected the equity holder’s use of a historic ten-year rate average in its projections instead of the projections prepared by an independent expert retained by Genco. This published opinion confirmed the prepackaged plan on the economic terms negotiated by Milbank and also upheld broad third-party releases in favor of Milbank’s clients. Even with delays caused by the equity holders, Genco emerged from bankruptcy fewer than 90 days after the parties executed the restructuring support agreement with a streamlined balance sheet and controlled by Milbank’s clients.
The Milbank team representing Genco's secured creditors consists of partners Dennis Dunne (Financial Restructuring, NY), Samuel Khalil (Financial Restructuring, NY), Albert Pisa (Alternative Investments, NY), Alexander Kaye (Corporate, NY), and David Cohen (Litigation, DC); special counsel Brian Kinney (Financial Restructuring, NY), Brian Kelly (Corporate, NY), and Aaron Renenger (Litigation, DC); and associate Michael Price (Financial Restructuring, NY).
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Milbank, Tweed, Hadley & McCloy is a leading international law firm that has been providing innovative legal solutions to clients throughout the world for more than 145 years. Milbank is headquartered in New York and has offices in Beijing, Frankfurt, Hong Kong, London, Los Angeles, Munich, São Paulo, Singapore, Tokyo and Washington, DC.
The firm’s lawyers provide a full range of legal services to the world’s leading commercial, financial and industrial enterprises, as well as to institutions, individuals and governments. Milbank’s lawyers meet the needs of its clients by offering a highly integrated and collaborative range of services across key practice groups throughout its global network. Milbank’s integrated practice is underpinned by its attorneys’ acknowledged technical excellence, sectorial expertise and a strong tradition of innovation and client service.
