Azerbaijani Bank Wins U.S. Bankruptcy Court Recognition
28 June 2017 - 10:23PM
Dow Jones News
By Tom Corrigan
A New York bankruptcy judge agreed to help the International
Bank of Azerbaijan, the country's largest lender, fend off
creditors while it works to restructure more than $3 billion in
debt.
In a decision handed down Wednesday at the U.S. Bankruptcy Court
in New York, Judge James Garrity Jr. approved the bank's chapter 15
petition, overruling an objection from a group of bondholders
unhappy with their treatment under the bank's proposed debt-cutting
plan.
Battered by a decline in oil prices and currency fluctuations,
the bank says it has taken substantial losses in recent years,
despite several capital infusions. A formal restructuring process
began in Azerbaijan in April, court paper show.
The bank, which is owned by the Azerbaijani government, sought
chapter 15 protection last month to help it restructure $3.3
billion in bad loans. With a judge's approval, chapter 15 provides
foreign companies with the full benefits of U.S. bankruptcy law,
including those that halt lawsuits and block creditors from seizing
assets.
A group of the Azerbaijani bank's international creditors,
namely U.S. and European investors facing big losses on
bondholdings, had complained that the plan was fundamentally unfair
and designed to shortchange them.
Bondholders say a voting process has been skewed to benefit the
bank's owners, noting that if they vote against the plan or abstain
from voting, their ultimate recovery will be substantially less
than if they vote to support it.
"The whole process has been allowed to preference local
creditors," Fredric Sosnick, a lawyer for the bondholders, said
during a court hearing last week.
But to halt recognition, the bondholders had to clear a high
legal bar, showing that chapter 15 recognition would be "manifestly
contrary to the public policy of the United States."
In his ruling Wednesday, Judge Garrity said issues raised by the
bondholders "did not rise to the level of violating fundamental
U.S. principles."
Court papers show the objecting bondholders, owed $220 million,
include funds and accounts managed by Fidelity Management &
Research Co., Franklin Templeton Investment Management Ltd.,
Promeritum Investment Management LLP and VR Global Partners LP.
The International Bank of Azerbaijan has over 750,000 customers
in Azerbaijan and abroad and says it provides a critical economic
link between Azerbaijan and the rest of the world.
Thomas MacWright, a lawyer for the bank, told Judge Garrity that
U.S. recognition of its restructuring process was "critical to that
country's banking sector and economy."
Mr. MacWright also pointed to the fact that the objecting
bondholder group holds less the 10% of the bank's overall debt. And
he said that Cargill Financial Services International Inc., the
bank's largest creditor owed $715 million, supports its chapter 15
petition.
With chapter 15 approved and with similar protections granted in
the U.K., a court in Azerbaijan is next slated to hold a hearing on
the bank's restructuring plan. Once the plan is approved in its
home country, the bank will have to return to Judge Garrity to seek
enforcement of its terms in the U.S.
Azerbaijan is a small oil-rich country on the Caspian Sea,
nestled between Russia and Iran. The International Bank of
Azerbaijan is based in Baku, Azerbaijan's capital, and has
subsidiaries in Russia and Georgia, court papers show.
Write to Tom Corrigan at tom.corrigan@wsj.com
(END) Dow Jones Newswires
June 28, 2017 17:08 ET (21:08 GMT)
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