Hanjin Shipping files for Chapter 15 protection

BY Richard Summerfield

South Korean shipping firm Hanjin Shipping Co Ltd has filed for Chapter 15 bankruptcy protection in the US, in an attempt to stop the company’s creditors seizing its fleet of vessels.

Hanjin, the seventh biggest shipping company in the world, filed for protection on Friday in a court in New Jersey after receiving word that its creditor banks had decided to end the financial support they were providing the company. The creditors also rejected Hanjin’s proposed restructuring deal.

The $896m worth of financial assistance Hanjin had received from its creditors had proved insufficient as the company tried to stay afloat amid volatility in the global shipping industry.

Overcapacity has had a significant impact on shipping companies the world over. In the days running up to its US filing, the company also moved to protect its assets elsewhere, filing for receivership in South Korea on Wednesday. In an attempt to secure legal protection for its ships, Hanjin has plans to pursue legal action in around 10 countries over the course of this week and later expand that to 43 jurisdictions.

As a result of the company’s bankruptcy filings, Hanjin’s vessels have been denied access to ports at a variety of locations. The number of ships that have been denied port access around the world, including in the US, has risen to 79, comprising 61 container ships and 18 bulk carriers, according to South Korea’s financial regulator. That figure includes one vessel seized in Singapore by a creditor, a company spokeswoman said. Hanjin has 141 ships, 128 of which are currently operating. In China, Japan, Singapore and India ,the company has seen 45 vessels denied access to ports. Several of Hanjin’s vessels have also been seized by creditors, including state-run Korea Development Bank.

Hanjin’s ships are currently carrying cargo worth $14.5bn belonging to some 8300 cargo owners, according to the Korea International Trade Association. The bankruptcy of a company of Hanjin’s status is notable, as it accounts for 7.8 percent of trans-Pacific trade volume for the US market. The company’s collapse marks the largest ever bankruptcy filing for a container shipper.

Hanjin’s stock has fallen around 34 percent since the company’s creditors said they were no longer supporting the firm. Given that the company’s collapse has coincided with the high seasonal demand for the shipping industry ahead of the year-end holidays, Hanjin’s bankruptcy is likely to cause a ripple effect throughout the global supply chain, and in the US retail space.

News: Hanjin Shipping filed for U.S. bankruptcy protection: WSJ

Corporate bankruptcies on the up

BY Richard Summerfield

Following a period of relative calm in the corporate bankruptcy world, from 2010 onwards when corporate insolvencies flattened and then fell into decline, more and more companies now appear to be experiencing distress.

With the global economic crisis and recession of 2008 slowly disappearing from view, it seemed as if businesses were on better, more stable footing. However, there has been a recent resurgence in the number of corporate bankruptcies. Filings rose again in the second quarter of 2016, according to BankruptcyData.com's 'Q2 2016 Business Bankruptcy Filing Report'.

The report notes that the number of businesses filing for bankruptcy protection jumped 9 percent in the second quarter of the year compared to Q1. Equally, there was a 25 percent year-on-year climb compared to Q2 2015, up 7 percent compared to Q2 2014.

Up to June 2016, there has been an increase of 23 percent compared with the same period last year and a 4 percent jump on the same period in 2014. Furthermore, the average number of filings per day figure recorded in Q2 2016 is the highest since 2013.

Much of the financial difficulty experienced by public companies in the US can be attributed to the troubled and volatile energy sector. Energy focused companies accounted for the majority of public filings recorded in the first half of the year – 10 of the largest 15 bankruptcies came from the energy space. Over 80 percent of the $86bn in assets entering bankruptcy were from energy-related companies. In addition to a number of oil & gas companies filing for Chapter 11, every large publicly-traded pure-play coal company has now filed for bankruptcy.

The report suggests that the flow of companies applying for Chapter 11 protection is likely to continue, with more difficulty expected in the energy space. Elsewhere, the amount of high-yield debt raised during the 2009-2015 credit cycle was considerable. This could easily contribute to a new spike in bankruptcy filings in the future.

Report: Q2 2016 Business Bankruptcy Filing Report

Energy XXI files for Chapter 11

BY Richard Summerfield

Energy XXI has become the latest oil & gas producer in the US to file for Chapter 11 bankruptcy protection. According to a statement, the company hopes to eliminate more than $2.8bn worth of debt during its restructuring.

Court documents filed in Houston, Texas note that prior to the filing the company had agreed a deal to secure a $1.45bn debt-for-equity swap with a group of its bondholders.

Energy XXI, which employs around 300 people, will continue to honour employee and vendor payments as it has sufficient liquidity of around $180m of cash on hand. Energy XXI will also be able to utilise funds generated from ongoing operations to support the business in the ordinary course during the financial restructuring process.

Much like many of its rivals, Energy XXI has been struggling to keep its head above water for some time; since the collapse of crude oil prices, it has been forced to slash its budget by almost half, reduce costs, cut its workforce from nearly 500 last year, and divest assets. However, these measures appear to have been insufficient. The price of crude has hovered around $40 for some time, and, according to data from Reuters, it needs to be at least $60 for Energy XXI to break even.

In March the company announced that it was delaying an interest payment due on debt of one of its subsidiaries, a decision that began a 30 day grace period. However, discussions between the company and a number of its major unsecured creditors are believed to have begun in summer 2015. At the end of February, the company said it had been warned it could be delisted from the Nasdaq Stock Market as a result of ongoing financial difficulties.

In order to execute the Chapter 11 restructuring, Energy XXI entered into a restructuring support agreement with holders of more than 63 percent of the company’s secured second lien 11.0 percent notes. The agreement will facilitate the removal of all of the company’s debt other than its first lien reserve based loan facility.

Energy XXI must file a reorganisation plan by 16 May and have it approved by the judge overseeing the case by 8 August.

News: Energy XXI Files for Bankruptcy After $5 Billion Expansion

Bankruptcy snapshot reveals US filings up 46 percent in 2015

BY Fraser Tennant

The US business bankruptcy landscape saw bankruptcy filings increase by 46 percent in 2015 — due primarily to a challenging energy sector environment — according to a report released this week by BankruptcyData.com, a leading provider of information on companies in bankruptcy.

In the ‘Q4 2015 Business Bankruptcy Filings Report’, which breaks down business bankruptcy filings into factors such as industry, sales volume, company size, liability and asset ranges and public and private filings, a total of 79 publicly traded companies (with $81bn in combined pre-petition assets) are revealed to have filed for Chapter 7 or Chapter 11 protection in 2015.

Furthermore, eight of the 10 largest Chapter 11 filings were initiated by companies operating in the oil and gas, mining and related sectors — a substantial 51 percent of the total public bankruptcies seen in 2015. Overall, 40 of the 79 filings involved oil and gas and mining companies.

However, despite this significant uptick, the total assets entering Chapter 11 in 2015 increased only marginally in comparison with 2014; due, in the main, to the $40bn bankruptcy of Energy Future Holdings.

The analysis also shows that six of the publicly traded filings have assets above $3bn (compared to two filings the previous year) while there were 19 bankruptcies with assets over $1bn (compared to 11 the year before).

Looking forward to what 2016 has in store for the business bankruptcy landscape, many analysts, including distressed securities investor George Putnam, expect to see a further increase in activity in US bankruptcy courts.

"There could be a number of additional companies getting ready to file in 2016," said Mr Putnam. “The face amount of bonds that have not yet defaulted but are trading below 50 cents on the dollar jumped to about $80bn in December, a more than five-fold increase during 2015 and the highest level since the 2008-09 financial crisis."

In terms of overall US Bankruptcy Court trends, the BankruptcyData.com report notes that the 2015 figures represent approximately 33 percent of the business bankruptcy activity seen in 2009.

BankruptcyData.com said: “Low interest rates, a robust capital market with easy access to financing, out-of-court settlement alternatives, a slightly improving economy, the perceived cost of filing for bankruptcy and tighter bank lending decisions have driven the number of bankruptcy filings down over the last six years.

“Additionally, the recession eliminated many of the troubled companies, so the remaining relatively healthy businesses are able to borrow with little fear of raising rates keeping the filing rates down.”

Report: Quarterly Report of Business Bankruptcy Filings - Period Ending December 31, 2015

Phenomenon of 'too big to fail' banks at an end following regulatory action by FSB

BY Fraser Tennant

In a move that brings about the end of the phenomenon of banks being ‘too big to fail', the  Financial Stability Board (FSB) has this week unveiled its final Total Loss-Absorbing Capacity (TLAC) standard for global systemically important banks (G-SIBs).

The TLAC standard issued by the FSB, the body that coordinates regulation across the Group of 20 economies (G20), is essentially a buffer that will allow a big bank to fail whilst ensuring that no economic disorder ensues, as it did at the height of the 2007-09 financial crisis.

To do this, failing G-SIBs will be given access to sufficient loss-absorbing and recapitalisation capacity available for authorities to implement a resolution that minimises impacts on financial stability, maintains the continuity of critical functions, and avoids exposing public funds to loss.

Furthermore, the TLAC standard states a minimum requirement for G-SIBs bail-in but does not limit authorities’ powers to expose other liabilities to loss through bail-in or the application of resolution tools other than the TLAC. G-SIBs will also need to meet the TLAC requirement alongside the minimum regulatory requirements outlined in the Basel III framework (a comprehensive set of reform measures developed by the Basel Committee on Banking Supervision (BCBS)).

The existence of the TLAC tool follows on from the G20’s request in the wake of the financial crisis for the FSB to undertake a program of reforms such as increasing bank capital requirements, making derivatives markets more transparent and keeping a tighter rein on bankers' bonuses.

“The FSB has agreed a robust global standard so that G-SIBs can fail without placing the rest of the financial system or public funds at risk of loss," said Mark Carney, chair of the FSB. “This new standard, which will be implemented in all FSB jurisdictions, is an essential element for ending too-big-to-fail for banks. The economic impact assessments conducted as part of the detailed policy work shows that the economic benefits of the final standard far outweigh the costs.”

The FSB’s consultation period on a proposed standard on TLAC began in November 2014 in consultation with the BCBS; the final standard (November 2015) features numerous changes made following the consultation and impact assessment studies (also published this week).

In a letter to G20 leaders ahead of next week’s summit in Turkey (15 to 16 November), Mr Carney said that "countries must now put in place the legislative and regulatory frameworks for these tools (the TLAC standard) to be used."

News: G20 finalizes tools for ending 'too big to fail' banks