Arcapita Files for Chapter 11

19 May, 2012

Arcapita Bank, the international investment firm licensed as an Islamic wholesale bank by the Central Bank of Bahrain has announced that it and several of its affiliates, including Arcapita Investment Holdings Limited, have filed voluntary cases in the United States under Chapter 11 with the goal of developing and confirming a plan of reorganisation. The action is designed to allow Arcapita to protect their business and assets and implement a comprehensive restructuring that rationalises Arcapita’s capital structure and maximises recoveries to creditors and other stakeholders. The filings automatically imposed a worldwide injunction against collection and enforcement actions that will protect the assets of the Arcapita entities while a plan of reorganisation is formulated. None of Arcapita’s operating subsidiaries or portfolio companies are included in the filing.

Atif A. Abdulmalik, Chief Executive Officer of Arcapita said, ‘In the last three years, Arcapita has succeeded in managing its business to counter the effects of the financial crisis. During this period, Arcapita has repaid $1.7 billion in maturing bank facilities and stepped in with a further $900 million to support its investment portfolio. After plans to refinance a $1.1 billion financing facility coming due on March 28th 2012 were negatively impacted by the Eurozone crisis, Arcapita commenced discussions with the facility participants to extend it by three years. These negotiations started several weeks ago and began as a consensual and constructive process with the bank group, which has supported us extensively through the downturn. However, the actions of certain non-bank creditors have precluded Arcapita from reaching such a consensual resolution before the March 28th maturity date, jeopardising Arcapita’s ability to satisfy its fiduciary duties to its stakeholders. The filings offer Arcapita the necessary protection it needs to complete productive negotiations with all parties.’

It is understood that it was hedge fund creditors that were pushing for an early settlement and that it was these same hedge funds that refused to cooperate with Arcapita’s attempts to reach agreement with creditors about repayment of the debt. Most restructurings in the Middle East and GCC have been rather private and protracted affairs with problems resolved behind closed doors and in the case of stated backed or strategically important institutions governments have stepped in to help. Arcapita are unusual in that most of their portfolio operations are US based, thus allowing them to seek bankruptcy protection under Chapter 11 laws. There is, however, no guarantee that the problem will be resolved under US law; it is likely that the hedge funds involved will seek the most favourable jurisdiction to push through their claims.