Leading global law firm Baker McKenzie announced today that the New York and Miami offices represented Credivalores – Crediservicios S.A. ("Credivalores"), a leading non-bank financial institution ("NBFI") in Colombia, in connection with an exchange offer (the "Exchange Offer") and Chapter 11 Prepackaged Plan of Reorganization (the "Plan") related to the restructuring of its 8.875% Senior Notes due 2025 (the "Old Notes"). The Plan was approved on July 2, 2024 by Bankruptcy Judge David S. Jones of the U.S. Bankruptcy Court of the Southern District of New York.
The restructuring of the Old Notes was achieved through an exchange offer that was unusual in that it offered two ways to accomplish the exchange. Bondholders could vote for the exchange or could vote for a prepackaged bankruptcy where only the bonds were impaired. The exchange offer/prepack was launched on March 7, 2024, with Credivalores offering new Senior Secured Step-up Notes due 2029 (the "New Notes") in exchange for the Old Notes. Consummation of the Exchange Offer was conditioned upon the valid tender of at least 95% in aggregate principal amount of the outstanding Old Notes or, in the alternative, having sufficient votes necessary to approve the Chapter 11 prepack (two-thirds in amount and one-half in number of votes properly cast).
While only 42% of the amount of bonds voted in favor of the Chapter 11 prepack, that was sufficient to approve the issuance of the New Notes (which, among other matters, involved a 25% haircut in the value of the Old Notes).
Some have described the case (which the bankruptcy judge characterized as "unusual") as representing a fundamental shift in the balance of power between activist debt vulture funds and distressed debtors who are typically at the mercy of these funds. Adding the prepack option to the exchange offer allows a smaller amount and number of bondholders to approve the debt restructuring and most importantly "drags along" all of the bondholders (including the objecting bondholders) to be bound by the terms of the New Notes. In a sense, this innovation is sort of a collective action clause that sovereign bond issuers took years to adopt and that eliminated the power of activist "holdouts".
There were approximately eight NBFIs (mostly in Mexico) two years ago. All of those companies have effectively liquidated because they collided with the maturity wall of their international bonds that they could not refinance. Credivalores is the only NBFI to have survived.
As a post-script, the destruction of this industry is particularly unfortunate since it serves a valuable social service. The large banks in Latin America have never had an interest in lending to low income people or small and medium enterprises. NBFIs were designed to fill this gap in the social safety net.
A large number of partners and associates were involved in this matter from various offices and practice groups including capital markets, bankruptcy, corporate and litigation. The team included capital markets and corporate partners Mike Fitzgerald, Arturo Carrillo and Steven Sandretto, financial restructuring partner Paul Keenan, litigation partner Ben Davis, M&A/private equity partner Natalia Ponce de Leon (Columbia), and associates Alejandra Cuadra, James Gilmore, Carolina Gonzalez, Estefania Lalinde, Reggie Sainvil and Dionna Shean.