Charting new waters: Several shipping companies took on water as the industry went into a slump after the 2008 crisis. As they struggle to remain afloat, they may well look at the success of Arpeni Pratama Ocean Line’s restructuring. For showing how to cut debt and still keep the interests of creditors in mind, APOL is IFR’s Asia-Pacific Restructuring of the Year.
To see the full digital edition of the IFR Review of the Year, please click here.
Indonesia may be an investment-grade country, but when it comes to debt restructuring, the treatment of creditors remains far from convincing.
The three-year workout of Arpeni Pratama Ocean Line, completed in April following a successful, multi-pronged tender offer, was one of the most complex restructurings an Indonesian company had ever attempted. It involved multiple classes of creditors in an enormous number of countries, as well as a balancing act between secured and unsecured stakeholders.
Despite that challenging backdrop, APOL came up with a solution that was notable for putting onshore and offshore unsecured creditors on an equal footing. The complex negotiations allowed APOL to reduce and term out its liabilities in the most equitable way possible, providing a template for other Indonesian companies to follow.
After a few years of aggressive expansion, Indonesia’s largest dry-bulk shipping firm ran into trouble as freight rates plummeted in the aftermath of the 2008 credit crisis. Add to that some derivatives that had also moved against APOL, and the stage was set for a default.
In November 2009, the company was forced to seek the help of Rothschild, Norton Rose and SSEK to restructure debt.
That was no easy task. APOL had all kinds of debt, from working capital lines with local banks to US dollar bonds, as well as sale-and-leaseback facilities and Islamic MTNs.
“Before 2009, Arpeni had gone to all possible pools to fund,” said Sreejan Choudhary, an associate in debt advisory at Rothschild, which led the process. The liabilities of the company also were filed in multiple jurisdictions, under several different regulatory frameworks.
Altogether, the consolidated bill came to roughly US$700m. Most of that debt was maturing in 2013, and APOL was already in breach of covenants as its leverage had ballooned while its earnings shrank.
For starters, Rothschild implemented a formal debt standstill across the various jurisdictions. It also arranged meetings with the various parties to explore workout options. The biggest hurdle, however, was explaining the situation to senior unsecured lenders in Indonesia. Local banks were used to being given priority in the repayment of debt, so they wanted the same thing now that the company was being restructured. However, APOL’s many secured financings meant that capital structures had to be respected, leaving local lenders far down the list of those to be repaid.
Meanwhile, APOL also became the first Indonesian company to win Chapter 15 protection in the US, petitioning to have its US-dollar debt workout be made in Jakarta courts instead of in the US and thus removing the threat of US creditors starting liquidation proceedings.
Once all the parties were clear on how the process would work, Rothschild decided to give creditors a say on how much they would recover, so it came up with a reverse Dutch auction system.
“We were trying to ensure that lenders were not forced into taking a haircut,” said Choudhary. Ultimately, lenders bid as low as 10 cents and the average final haircut for unsecured creditors was 82%. At that level, though, some 90% of the creditors participated in the exchange, completed in April.
The final result also left APOL in a much better situation. It remained operational throughout the restructuring and saw its debt cut from US$700m to about US$400m. The average tenor on the debt was lengthened from four years to eight and the average yield dropped from 12% to 5%. The company does not pay any principal on the debt for the first three years either. Furthermore, thanks to special agreements with key ship-leasing creditors, the company was able to add four new vessels to its fleet, while the workout was still going on.