The American Lawyer Global Legal Awards honor the cross-border deals and disputes of 2013 that best exemplify the challenges of transnational legal practice. Below, the 10 winners in the Finance category.
Global Finance Deal of the Year: Project Finance (Europe)
Winner: Intercity Express Programme
Honorees: DLA Piper; Shoosmiths; Ashurst; Brodies; Clifford Chance; Addleshaw Goddard; Maclay Murray Spens; Hogan Lovells; Freshfields Bruckhaus Deringer
Ever since Robert Stephen took Britain by surprise with his Rocket locomotive in 1829, the country has had a love-hate relationship with the railway. The British love the hands-free travel, “letting the train take the strain,” as the old railway company jingle had it. But they hate rush hour congestion and timetables that feel sometimes more observed in the breach.
Since they were introduced 38 years ago, the old Intercity 125 trains have become almost as iconic as the Rocket. But when the stalwart High Speed Trains (HST) began showing their age a decade ago, the U.K. government went shopping for a replacement. In 2009, the Hitachi Super Express was declared the winning bidder.
It was quite a prize. The Intercity Express Programme calls for the purchase of 866 vehicles and the construction of four major depots. The trains promise to be bigger, more reliable, and easier on the environment. At 5 billion pounds, this is the largest investment in British rolling stock in 30 years.
To get the trains built and rolling, the sponsors opted for the first use of a public-private partnership (PPP) to buy railroad trains in the United Kingdom. The financing structures had to clear U.S., Scottish and Japanese regulatory and other legal requirements. The 4.2 billion pounds of senior debt was divided across four groups of lenders who expect to be paid out over 30 years.
The first trains are scheduled to arrive in 2017. It will be the first big test of the new IEP timetable.
Global Finance Deal of the Year, Project Finance (Asia)
Winner: Uz-Kor Surgil Project
Honorees: Vinson & Elkins; Leges Advokat; Cheong Kee Fong & Co; Shin & Kim; Norton Rose Fulbright; Colibri Law; Zaid Ibrahim & Co; Kim & Chang; Uz-Kor Gas Chemical
Long ago Uzbekistan was fabled for its Silk Road glories. Its turquoise-domed cities still attract a hearty tourist crowd. But for the most part it’s just another mineral-rich Central Asian nation that has yet to shake a post-Soviet grip on economic life and political expression.
Now, a major petrochemical project in the heart of Central Asia promises to bring major changes to the region. Indeed, an Uzbek foreign minister has said that the gas and chemical project may prove to be the foundation for Uzbekistan’s transformation into a knowledge economy. But first the Uzbeks have to capitalize on their natural resources.
This project is remarkable in a number of ways. Most projects in this sector are either upstream, involving the extraction of the resource, or downstream, involving the processing and delivery of the resource. But Uz-Kor combines an upstream project (the development of the Surgil gas and condensate field) with a downstream project (the construction of the Ustyurt Gas Chemical Complex) into a single financing.
The $4 billion project includes the largest South Korean financing component ever assembled for a project ($1.8 billion), and the largest petrochemical project financing in the CIS region. Putting the deal together required first creating a project company. Uz-Kor is jointly owned by UNG, the Uzbek national gas company, and Kor-Uz Gas Chemical Investment Ltd, the latter a consortium owned by three Korean energy companies. Second, the money was raised from a combination of quasi-public development agencies across Asia, nine commercial banks and several European export credit agencies. The financing closed last November. Ultimately the project will produce 21st-century polymers that will be sold across Europe and Asia, taking advantage of a location valued since ancient trading days.
Global Finance Deal of the Year: Capital Markets
Winner: Trade MAPS program
Honorees: Linklaters; Allen & Gledhill; Matheson; Lennox Paton; Maples & Calder; Hassan Radhi & Associates; Mayer Brown; Citigroup Inc.; Banco Santander S.A.
At least since the ancient Greeks, financiers have fueled the growth of international trade by issuing a variety of credit instruments. Fast-forward to today’s speed-of-light global economy, and trade finance has grown into a $700 billion business—one laden, as The Financial Times put it, with “obscure assets.” With yield-hungry investors searching for new kinds of assets, and banks eager to move obligations off their balance sheets, Citibank and Linklaters found a solution: securitize a portfolio of trade finance assets.
Easier said than done.
The program was known as Trade MAPS. Its goal was to permit participating banks to sell long-term securities that essentially are bundles of short-term assets. The underlying loans could come from almost any sector—from agriculture to financial services to transportation. This program aimed to improve the liquidity position of the bank, provide a steady stream of capital to finance trade and pay a reliable dividend to investors.
But it took some lawyering to get there. Linklaters deployed lawyers in 19 offices to analyze the legal and regulatory position in over 60 countries and develop bespoke asset-sale structures to provide the banks with maximum flexibility for asset contribution. In turn, this required creating a structure that allows for participation by multiple banks almost anywhere in the world, accommodating both U.S. and European accounting rules on the treatment of assets taken off balance sheets, and complying with the latest securitization risk retention requirements under Dodd-Frank and EU Risk Retention Rules.
After nearly two years of preparatory work, Citibank and its banking partner Santander sold $1 billion in trade finance assets last December.
Global Finance Deal of the Year: Capital Markets (Latin America)
Winner: BB Seguridade IPO
Honorees: Lefosse; Bocater, Camargo, Costa e Silva Advogados; Clifford Chance; Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados; Davis Polk & Wardwell; BB Seguridade
Host of the recent FIFA World Cup, and soon-to-be host of the 2016 summer Olympic Games, Brazil is becoming increasingly accustomed not only to being on the world stage, but also to putting on the show. And that’s no less true in business than it is in sport.
The largest public offering in the world in the first half of 2013 was that of BB Seguridade—the insurance arm of the state-owned Brazilian bank Banco do Brasil. In the offering, the bank raised 11.5 billion Brazilian Reais (around $5.75 billion). That was the largest IPO in Latin America since 2007, when Santandar Brasil went public. Banco do Brasil, which retains about 70 percent of the new company, plans to use the influx of capital to fund acquisitions.
Size brought with it complexity. While planning the IPO, the bank had to migrate its insurance, capitalization, private pension and brokerage operations into the new BBS entity. Before the deal opened to the public, the bank also extended to its employees an offer to invest. Both aspects—the spinoff and the in-house stock offer—caught the attention of Brazilian regulators who monitored the terms closely before finally approving it. The matter closed in April 2013.
Global Finance Deal of the Year: Capital Markets (Asia)
Winner: China Merchants Bank rights issue
Honorees: Sullivan & Cromwell; Herbert Smith Freehills; Jun He Law Offices; Freshfields; Commerce & Finance Law Offices; China Merchants Bank
A year ago, China Merchants Bank raised about $5.5 billion in the second-largest share sale of 2013, part of an effort to improve its capital ratios and fund future growth. CMB, like other public companies based in mainland China, offers two types of shares: A-shares, traded in Shanghai or Shenzhen and available to Chinese nationals, and H-shares, traded in Hong Kong and offered to offshore investors. The bank was keen to offer rights to invest to the H-shareholders, over 20 percent of whom are U.S. entities. But the bank was also eager to avoid the burden of meeting some of the U.S. securities law disclosure requirements.
To manage that, the lawyers steered the bank toward Section 4(2) of the Securities Act of 1933, which allows for private placements with “sophisticated” investors. The advantage was clear. If the U.S. Securities and Exchange Commission was convinced that CMB was only offering the rights to qualified investors, that there was no general solicitation, and that investors weren’t going to resell the rights or the underlying shares to unqualified investors, the bank could skip many of the regulatory requirements, and the offering could be significantly speeded up.
To accomplish that, Sullivan & Cromwell employed security firms to prescreen existing U.S. shareholders. With those results in hand, they reached out to the prescreened qualifying shareholders to verify identity, status and their interest level in the offering. Only those who met those requirements were offered rights to invest—and only then if they agreed to abide by rules limiting resale or transfer of those rights and the underlying shares. After that, communications took place directly between the issuer and the investors to avoid an underwritten offering and general solicitation.
The rights issues—first of the A-shares in China and then, within the two-week requirement, of the H-shares issued on the Hong Kong exchange—went off without a hitch. Both Chinese and U.S. regulators were satisfied, and CMB put $5.5 billion onto its books.
Global Finance Deal of the Year: Acquisition Finance
Winner: Numericable’s acquisition of SFR
Honorees: Ropes & Gray; Franklin Law Firm; Latham & Watkins; Altice S.A.; Allen & Overy
The prize was SFR, the largest mobile phone operator in France. Vivendi owned it, but as part of its corporate streamlining was eager to sell. Two bidders vied for the company. On one side was Patrick Drahi, a billionaire who controlled Altice S.A., a Luxembourg-based cable and telecom company, that in turn controlled France’s major cable operator, Numericable. Competing for SFRT was Bouygues, the French construction and telecom giant.
This was a complex and politically charged deal, a key battle in what looks like the consolidation of Europe’s telecom market. In the end, Numericable prevailed with an offer of 13 billion euros (roughly $17 billion) for the bulk of the company. (Vivendi retained a 20 percent stake.)
To finance the deal, Numericable raised 7.9 billion euros, or about $10.9 billion, the largest junk bond offering in European history, according to news reports at the time. The complex financing will be broken into several tranches, the whole funded through a combination of dollar and euro-denominated high yield debt, covenant-lite loans, revolving loans and an equity rights issuance by Numericable. Altice will finance the purchase of its portion of the Numericable equity rights issuance with dollar- and euro-denominated high yield debt. In sum, a mammoth transaction for the lawyers involved.
Global Finance Deal of the Year: Restructuring and Insolvency (Europe)
Winner: Restructuring of Central European Distribution Corporation
Honorees: Latham & Watkins; Skadden, Arps, Slate, Meagher & Flom; White & Case; Cadwalader, Wickersham & Taft; A1 Investment Company
The nexus between alcohol consumption and insolvency is long-established, though perhaps never on such a grand scale as in the case of the Central European Distribution Company (CEDC).
For two decades, CEDC grew robustly. Shortly after the fall of the Berlin Wall, it became the exclusive importer of Anheuser-Busch and Fosters beer in Poland. Seven years later it went public, issuing 2 million shares on the New York stock exchange. In 2005 it opened its own distillation facilities, producing Bols vodka (known by connoisseurs for its superbly clean finish and lingering cracked black pepper and charcoal aftertaste).
But then came the hangover: 2012 was an annus horribilis for CEDC. Sales slumped, and the company was wounded by rising debts and difficult management transitions. In July of that year, CEDC signed a deal with Roust Trading Limited (RTL), owned by Roustam Tariko, one of the liveliest members of Russia’s plutocracy. By finding and closing gaps in the post-Soviet market for high-quality chocolates and Western alcoholic drinks, Tariko became a veritable baron of beverages.
But CEDC endangered his empire. The multinational nature of the company—operations spread across Poland, Russia and Hungary, and shares traded on both U.S. and Polish exchanges, with outstanding loans in as many jurisdictions as would give them—complicated any rescue effort. Ultimately, RTL and its parent Russian Standard Corp. opted for a prepackaged reorganization under U.S. bankruptcy provisions. The terms called for CEDC to emerge as a wholly owned subsidiary of RTL. It took but 59 days to implement the plan during which $1.3 billion of notes were redrawn, and $665 million worth of debt went down the bankruptcy drain. At the end, everyone needed a strong shot of the home brew.
Global Finance Deal of the Year: Restructuring and Insolvency (Middle East)
Winner: Restructuring of Arcapita Bank
Honorees: Gibson, Dunn & Crutcher; Latham & Watkins; Dechert; Kirkland & Ellis; Sidley Austin; Skadden, Arps, Slate, Meagher & Flom; Milbank, Tweed, Hadley & McCloy; Arcapita Bank, Mourant Ozannes; Haya Rashed Al Khalifa, Attorneys at Law & Legal Consultants
Headquartered in Atlanta, Arcapita Bank is a wholly owned subsidiary of the Bahrain-based Arcapita Group. Over the years it has bought stakes in Caribou Coffee, Church’s Chicken and J. Jill, the women’s clothing chain, among other things. But what separates Arcapita from other investment groups is its status as a bank that follows Shariah finance law.
This became more than a matter of financial exotica when Arcapita filed for Chapter 11 protection in 2012. This restructuring would prove to be a landmark: the first successful Chapter 11 restructuring of a Shariah-compliant entity—and in parallel, the first Cayman court approved Shariah-compliant Debtor-In-Possession (DIP) Facility and Exit Facility in that jurisdiction.
According to the lawyers involved, the strategy to file in the U.S. was developed and implemented on less than five days’ notice, in response to a creditor’s threats to commence proceedings in the Cayman Islands. But they faced more than time pressures. A Shariah-compliant restructuring had never been undertaken in a U.S. bankruptcy court. Further, Arcapita only held minority interests in many of the companies in their investment portfolios. To exit, it had to negotiate new agreements.
None of these barriers proved insurmountable. Under the plan of reorganization, Arcapita will repay its only secured creditor, Standard Chartered Plc, in full, transferring its assets to a new holding company that will dispose of its investments over time. The company’s unsecured creditors will receive equity in the new holding company as well as a pro rata share in a Shariah-compliant loan. Now that a precedent has been set for handling these sorts of bankruptcies in Chapter 11, others seem likely to follow.
Global Finance Deal of the Year: Restructuring and Insolvency (Asia)
Winner: Reorganization of Elpida Memory
Honorees: Davis Polk & Wardwell; Richards Layton & Finger; Elpida Memory, Inc.; Nobuaki Kobayashi, Oh-Ebashi LPC & Partners; Nagashima Ohno & Tsnunematsu; Wilson Sonsini Goodrich & Rosati; Morrison & Foerster; Mori Hamada & Matsumoto; Landis Rath & Cobb
In Greek, “elpida” means hope. But by 2012, hope was in short supply at Elpida Memory Inc., a Japanese market leader in the production of Dynamic Random Access Memory (DRAM), the memory inside most desktop and laptop computers. Facing liabilities of about $5.5 billion, Elpida became the largest Japan-based manufacturer to file for bankruptcy.
But its core business remained attractive to competitors—if the Japanese reorganization plan could win full approval under the U.S. Bankruptcy Code. Chapter 15 provides a mechanism for dealing with insolvency cases involving assets and parties in several countries. But it had never been applied to a Japanese collapse.
What followed over the next 14 months was a cross-border and cross-cultural race to have Elpida’s fate work its way through both the Japanese and U.S. bankruptcy systems. The goal was for Micron, a leading U.S. competitor, to acquire Elpida’s operations; together they would become the second-largest memory manufacturer in the world.
Chapter 15 approval came in January 2013, and the next month Micron completed its takeover of Elpida’s remain assets. The company is just a memory, but Micron kept hope alive.
Global Finance Deal of the Year: Restructuring and Insolvency
Winner: Restructuring of hibu group
Honorees: Linklaters; Herbert Smith Freehills; The Alcentra Group; Kirkland & Ellis
Once upon a time, the Yellow Pages were as essential to finding a local merchant as a Google search is today. But those days passed, and by 2012, hibu (formerly Yell), the U.K.-based parent company of Yellow Pages, was heading for the ash heap of history. Given its 2.2 billion pounds ($3.6 billion) in debt and substantial pension deficit, only a major restructuring could steer it away from collapse.
In the summer of 2012, Linklaters was appointed to act for the coordinating committee of lenders, and set about devising a solution that would eventually see the group radically reorganized, with lenders taking ownership of the group and writing down the debt. Ultimately, the restructuring saw eight separate, interconditional English law schemes of arrangement and a bespoke intercreditor agreement with hibu’s pension trustees.
There were two enormous challenges to clear. First, the debt was spread around the world and required a mechanism that would allow it to be consolidated and then reallocated in roughly fair proportions. The solution lay in creating a special-purpose vehicle in Jersey into which all existing debt participations were transferred before being parceled back out.
Second, the Spanish language assets were in such bad shape that they threatened the entire rescue. But casting off those holdings would have cost the parent company its valuable Latin American businesses, which lenders wanted to keep. Eventually, the corporate structure was revamped to quarantine the distressed assets while keeping the Latin American jewels.
Not everybody was happy with the outcome of the hibu restructuring. To their chagrin, shareholders found that shares that once traded at 6 pounds were now worthless. And there were grumbles of discontent about the management salaries paid out as the ship was sinking. Nonetheless, about 12,000 jobs were saved, and the pension plans were reinforced and are once again viable.