DeepOcean UK Restructuring Plans face no opposition at sanction stage, sets first cross-class cramdown precedent
DeepOcean’s UK Restructuring Plans sanction hearing today (13 January) saw no opposition being voiced. As reported, Havila Chartering had intended to challenge the DeepOcean1 plan but settled its dispute with the company just hours ahead of the class votes on 6 January. However, DeepOcean Subsea Cables (DSC) one of three company entities subject to the plan failed to garner the 75% voting threshold for one of its two voting classes and would need to be subject to a cross-class cramdown.
After listening to submissions from the company and its senior secured lenders, Mr Justice Trower said he was satisfied that the conditions – most notably under section 901G of the new act were met - it was appropriate to sanction the plan. A written judgment will have to wait, with Justice Trower cognisant of the precedent set under the new process he wanted time to work out how to express the issues relating to cross-class cramdown and put in clearer terms than via an oral judgment.
The Dutch subsea services operator is the third company to use the UK plan, after Virgin Atlantic and PizzaExpress. The Triton-owned business is seeking to wind-up its loss-making cable laying and trenching (CL&T) division activities based in the UK (Darlington and Blyth). It would retain the IMR division – inspection, maintenance and repair business.
Cross-class cram down
DSC plan creditors were split into two, the DSC secured creditors and ‘other plan’ creditor claims. Three of the other plan creditors voted against representing 35.4% of claims (£387,000 total) with 64.6% voting in favour.
If a restructuring plan cannot be approved by one or more classes of creditors it can still be sanctioned by the court under section 901G as a cross-class cramdown. Conditions to be satisfied (according to the company skeleton citing the act) are (i) if the plan is sanctioned, none of the members of the dissenting class would be any worse off than they would be in the event of the “relevant alternative”; and (ii) the plan has been approved by at least one class of creditors or members who would have a genuine economic interest in the company in the “relevant alternative.”
Similar to a company voluntary arrangement (CVA) there are horizontal and vertical comparators, noted Smith. But these comparators only takes you so far, as the court still has discretion to refuse on the grounds that the plan would not be fair and equitable, he added.
Notwithstanding the de minimus size of the other plan creditor's claims – the secured lenders have £92.5m of claims – giving their voice weight - the majority of the ‘other plan’ class which should be deemed as intelligent and honest had approved the plan and were clearly no worse off than under the relevant alternative, said Jeremy Golding acting for the lenders. He cited the My Travel case – on which some of the new law appears to have been based, as grounds that as they have no genuine economic interest, they could not veto the plan.
Tom Smith QC acting for the company noted that whereas Section 901A of the act appears to be dealing with imminent insolvency and therefore directors’ duties could shift to creditors, it is “too absolutionist” that shareholders are excluded. Mr Justice Trower agreed with this view being too restrictive, recognising that English Schemes do not require this condition.
According to Section 901A: “the company must have encountered or be likely to encounter financial difficulties that are affecting, or will may affect, its ability to carry on business as a going concern; and a compromise or arrangement must be proposed between the company and its creditors or members (or any class of either) and the purpose of such compromise or arrangement must be to eliminate, reduce, prevent or mitigate the effect of any of the financial difficulties the company is facing.
Smith said that there was no artificiality to the plan, it is a composite restructuring which requires the consent of secured lenders to work, with a number of inter-conditional elements. This included new equity from sponsor Triton, conditional on the winding down of some of the plan companies and the approval of the Restructuring plans.
The UK Restructuring Plan will allow DeepOcean to exit non-profitable charters. Sponsor Triton would inject $15m of equity, with debt facilities maturities being extended to 2025.
DeepOcean has the following debt facilities:
€86.5m multi-currency RCF (€17m, $67.17m, £1.45m drawn)
€16.24m multi-currency TLB - €17.69m drawn
€38.43m super-senior RCF (Facility C - €3.64m, $4.18m, £9.83m, NOK 18m drawn)
Revolving ancillary facility (currently at zero)
On 27 November, Triton LuxCo acquired all the debt previously lent by ABN (also agent and trustee) under the facilities agreement and became a party to the lock-up agreement.
Claims held by UK Vessel owners (with no security and subordinated to the loans) would be released in full, with recoveries equal to 5.2% of their claims – compared with 1.2% in liquidation according to an entity priority model from Alvarez and Marsal.
UK landlords - which do not benefit from any of the security from the plan companies and therefore rank junior to the secured creditors - will recover around 4% of their claims.
Other creditors of DeepOcean1 and DCSL will recover just 4% of claims with those of ESL will get 8.2%.