Apr 17, 2018
By Declan Bush
A New York bankruptcy court has signed off on Brazilian oil and gas servicer Lupatech’s second Chapter 15 case, ending a US$275 million cross-border restructuring that has played out in New York and São Paulo since 2015.
The bankruptcy court for the Southern District of New York’s Judge Martin Glenn ordered on 26 March to close the Chapter 15 and grant final relief for Lupatech and its affiliates’ second restructuring plan, which was approved in Sao Paolo’s first bankruptcy court on 1 December.
In his motion to approve the plan on 12 January, Lupatech CEO and foreign representative Rafael Gorenstein said the Chapter 15 debtor protections had been “fully realised” and could be closed. Gorenstein, with counsel from CKR Law partner Edward Schnitzer, said any remaining matters would not need the US court’s help.
The Bank of New York Mellon (BNY), as trustee to a group of guaranteed senior noteholders, had objected to the recognition on 23 February, saying it would not let BNY collect fees and expenses owed to it since 2014.
But on 1 March the company countered that BNY’s objection contained factual errors and did not specify the amounts requested. Schnitzer told the court BNY had no legal basis to seek payment in a Chapter 15, which existed to recognise foreign proceedings.
“If BNY believes it is entitled to unspecified and likely inflated fees, and is unwilling to take those fees from the distributions as permitted, it is free to commence a litigation outside of this court,” he said.
BNY withdrew its objection on 20 March.
Lupatech filed its original restructuring plan in 2015 before São Paulo’s first chamber of bankruptcy, judicial recovery and arbitration disputes, after a pre-pack insolvency failed to save it from the plunge in oil prices the year before.
Under the plan, secured creditors could choose between a quarterly repayment of debt over 18 years after a five-year hiatus, with annually accrued 3% interest; a debt-to-equity conversion; or the early repayment of debt if the company sold assets, including the chance to take assets themselves.
Unsecured creditors, including bondholders, could also take quarterly repayment over a 20-year period at 3% interest, which could accelerate if the company merged or was bought. The plan allowed the sale of production units free of all debts.
Creditors approved the plan in November that year, and the court followed with a homologation order the following month.
But in June 2016, the reserve chamber of business law of the court of appeals of the state of São Paulo granted appeals of two creditors, who argued the plan’s four payment options violated Brazilian law.
The São Paulo court annulled Lupatech’s original plan and ordered it to prepare a new plan with several new criteria. The New York chapter 15 court, which had recognised the proceedings one month prior, suspended parts of its recognition order accordingly.
Lupatech filed a modified restructuring plan before the US court in September, cutting unsecured creditors’ payment options from four to one – half the amount paid in cash over time, and the other half paid in warrants.
The company’s three creditor groups approved the new plan in November 2016 with no appeals filed, and the Brazilian court entered a homologation order that December.
The Lupatech group includes several different debtors registered in the Cayman Islands, with its centre of main interests in Brazil. Lupatech justified its Chapter 15 filing by telling the US court it had US property, New York-governed debt, and creditors with proximity to the US.
The group, which made valves for the oil and gas industry, made 17 acquisitions for 733 million reais (US$219 million) on the back of abundant credit at very low interest available before 2008.
But things went sour when interest rates started to rise, the real devalued, and the oil price dropped, while Lupatech’s main customer Petrobras became embroiled in the Operation Car Wash corruption scandal.
In the US bankruptcy court for the Southern District of New York
In re Lupatech
Judge Martin Glenn
Counsel to Lupatech
Shearman & Sterling
Partner Fredric Sosnick and associate Randall Martin in New York
Partner Edward Schnitzer in New York
In the 1st chamber of bankruptcy, judicial recovery and arbitration disputes São Paulo
In-house counsel - João Marcos Cavichioli Feiteiro
Partners Thomas Benes Felsberg, Paulo Fernando Campana Filho and Clara Moreira Azzoni, and associates Pedro Henrique Torres Bianchi*, Thiago Dias Costa, Eduardo Luiz Kawakami and Solano Magno Deboni Neiva in São Paulo
*Since left the firm
This article originally appeared on https://latinlawyer.com/article/1167924/ny-bankruptcy-court-closes-second-lupatech-chapter-15-case.