Frequently Asked Questions
- What is Chapter 11?
- Why is Arcapita filing for a Chapter 11 plan of reorganization?
- What happens during a Chapter 11 process?
- Does this mean that Arcapita is likely to go out of business?
- How is Arcapita, a Bahrain company, able to file for Chapter 11 in the United States?
- What is the cost of Chapter 11, and will there be any lasting effect on Arcapita once it emerges?
- Which Arcapita entities have filed Chapter 11 cases?
- Which entities are NOT filing?
- What happens to operations outside the United States?
- Does Arcapita currently have enough cash to operate its business during the Chapter 11 case?
- Who are Arcapita's creditors?
- What is the total claim of creditors on Arcapita?
- What might be the response of the banks and other participants in the $1.1 billion murabaha to the Filing?
- What proportion of the creditors need to approve the plan of reorganization for the company to emerge from Chapter 11?
- How long will Arcapita be in the Chapter 11 process?
- Who will run Arcapita during the Chapter 11 process?
- What does "going into" and "coming out of" Chapter 11 mean?
- Where can I get a copy of the petitions and other documents?
- Where can I get more information?
Chapter 11 protects value for all stakeholders and provides more options for management. It is the portion of the U.S. Bankruptcy Code that allows corporations to reorganize under the protection of the U.S. Bankruptcy Court. A unique feature of Chapter 11 is that it allows Arcapita and its filing subsidiaries to continue to operate their business and manage their property during the Chapter 11 process, and expenses incurred during the case are accorded priority payment status. Because Chapter 11 allows Arcapita to continue to operate during the Chapter 11 process, Arcapita will be in a much better position to realize the true value of its investments over a reasonable time frame, rather than being forced to sell them over a short time horizon. The Chapter 11 filing triggers an "automatic stay," which essentially freezes all of the company's debts and obligations to its creditors and any attempts to collect on those obligations as of the bankruptcy filing date. The "automatic stay" also prevents all lawsuits against the company from moving forward. All legal claims are resolved through the Chapter 11 process.
Chapter 11 protects value for all stakeholders and provides more options for management. Arcapita has a $1.1 billion facility which falls due on March 28th 2012. We began preparations for the refinancing of this facility 18 months ago. Until the Eurozone crisis erupted in July 2011, we were on track to pay it back in a process that would pay down a portion of the facility with cash raised through disposals, and use a new facility to refinance the balance. However, as a result of the rekindling of the economic crisis, this process faltered, and our options for repayment became limited. A month ago, we engaged with the 50 participants in the $1.1 billion facility and committed to a consensual process that would agree terms with the existing participants to extend the maturity. In recent days, however, the actions of a small group of non-bank creditors have precluded Arcapita from reaching such a consensual resolution before the March 28th maturity date, jeopardizing Arcapita's ability to satisfy its fiduciary duties to its stakeholders. The Chapter 11 filing offers Arcapita the protection it needs from actions threatened by a handful of creditors that would substantially impair value to the detriment of Arcapita's other stakeholders. The Chapter 11 filing will allow Arcapita to complete orderly negotiations with all parties.
Chapter 11 is a tool used by companies to restructure debt and position their businesses for long term success. This process generally allows a filing entity to continue operating as usual while working with creditors to develop a plan of reorganization that provides for the restructuring of their obligations and the continuation of the company on a going forward basis. Employees should continue to receive their paychecks and benefits in the same manner as before the filing. When the plan of reorganization is negotiated, it will be presented to the Court for approval and, upon such approval, the company will be emerge from Chapter 11 and continue to conduct business as a strong and financially viable company.
Emphatically not. Chapter 11 is not a liquidation. To the contrary, Chapter 11 attempts to preserve value for creditors and other stakeholders by allowing the company to continue operating its business in the ordinary course. Entering Chapter 11 is clearly a big step, but it is designed to help the company and its stakeholders, not damage them, by preventing creditors from taking actions to undermine the value of the Company's assets while the company develops a plan of reorganization that allows it to emerge from the process as a stronger and restructured entity. In recent years, many large and successful companies have used the temporary protection offered under Chapter 11 and been restored to full prosperity, including companies such as General Motors, Chrysler and Delta Airlines. Most recently, American Airlines filed a Chapter 11 case that is still pending and, as those of you who have flown American recently may have noticed, their flights and service are exactly the same as they were before the case was filed.
Arcapita has many assets around the world, including in the US. Under the law governing Chapter 11, any company that has assets in the US is able to file for Chapter 11 protection in the United States.
The main cost of the Chapter 11 process is the cost associated with the engagement of professionals to assist in the reorganization process. However, many of these same professionals were already engaged by Arcapita in connection with its out of court restructuring efforts. The benefits of Chapter 11, including protection from unhelpful creditor action, and flexibility to restructure obligations, more than compensates for any additional costs. The lasting effect of the Chapter 11 process is only positive: when it emerges from Chapter 11, Arcapita will be a strong, viable company with the correct capital structure to resume its business successfully.
Six Arcapita entities have filed voluntary Chapter 11 cases: Arcapita Bank B.S.C.(c), Arcapita Investment Holdings Limited (AIHL), Arcapita LT Holdings Limited, WindTurbine Holdings Limited, AEID II Holdings Limited and RailInvest Holdings Limited. The cases were filed in the U.S. Bankruptcy Court for the Southern District of New York on March 19, 2012. Each of these companies either has some liability for the $1.1 billion facility or have other obligations which have some connection with this facility. Arcapita chose the Southern District of New York because Arcapita Bank's principal assets in the U.S. are located in New York, but in addition, the Bankruptcy Court in New York is widely recognized as one of the most experienced courts in the world in dealing with complex restructurings involving large multinational companies like Arcapita.
None of Arcapita's operating subsidiaries or portfolio companies have filed chapter 11 cases. Thus, Arcapita Inc. (US entity), Arcapita Limited (European entity) or Arcapita Pte.Limited (Singapore entity) and many, many other Arcapita entities and portfolio companies have not filed.
Ordinary course operations by Arcapita outside the United States are allowed to continue, however, the automatic stay imposed by Chapter 11 protects Arcapita from collection or enforcement actions by any creditor in any jurisdiction.
Yes. Arcapita has sufficient funds on deposit to meet its capital commitments to preserve the value of its investments and operate its business.
Arcapita's principal obligations are owed to lenders under the $1.1 billion murabaha facility, other financial institutions and other creditors. It also owes inter-company obligations and obligations to customers who have invested with Arcapita as part of its investment banking business.
The total creditor claims are still being determined but, including intercompany obligations, exceed $2.5 billion. However, it is important to note that Arcapita has a significant amount of assets to pay these claims, and the value of those assets is enhanced if they can be disposed of at the proper times in their investment cycle.
We believe that the creditors will recognize that the Chapter 11 process is in their best interests, and that it will maximize their recoveries. There may, however, be certain creditors, including Participants in the $1.1 billion murabaha facility, who argue that a liquidation is in their interests. Arcapita intends vigorously to oppose these arguments as a liquidation will not maximize the value of its assets for all stakeholders and will lead to additional losses by the Participants in the $1.1 billion murabaha facility.
While the voting rules are somewhat complex, the general rule is very simple as it applies to unsecured creditors, such as the Participants in the $1.1 billion murabaha facility and other holders of unsecured claims: the class of unsecured creditors must approve the plan by a vote of 2/3 in amount and more than ½ in number of the unsecured creditors actually voting on the plan of reorganization.
Under the process, Arcapita, with input from its creditors, will develop a plan of reorganization. Creditors will vote on the plan and the Court will hold a hearing to approve it. Once this occurs, Arcapita will be able to emerge from Chapter 11. We are working to reach an agreement with creditors as soon as possible. The length of time this takes depends entirely on the progress of the negotiations, but typically, it would take between 6 and 12 months. We will do our best to keep our employees, investors, creditors and other interested parties updated on significant developments as they occur.
There will be no change to the day to day running of Arcapita - Arcapita's existing management team will continue to run the operations of Arcapita as normal, and they will continue to report to the existing Board of Directors.
"Going into" means documents have been filed with the Court to request protection under the United States Bankruptcy Code. Following the filing of those papers, the organization is operating "in" or "under" Chapter 11 and is able to take advantage of certain provisions in the law. When the plan of reorganization is completed and approved by creditors, it is "confirmed" by the Court and the organization "comes out" "exits" or "emerges" from Chapter 11 as a reorganized entity.
The lead case number is 12-11076 and the Judge is the Honorable Sean H. Lane. Copies of the Chapter 11 petitions and other documents filed with the Court will be available shortly after the filing at www.gcginc.com/cases/arcapita. The petitions are also accessible at the Court's Internet site, http://www.deb.uscourts.gov/, through an account obtained from Pacer Service Center at 1.800.676.6856.
Arcapita has set up a special information page on the following web site: www.gcginc.com/cases/arcapita, which contains a variety of information on our Chapter 11 cases.