Elliott Advisors’ move to sue Vinashin throws company’s restructuring proposal into doubt

This article is provided to FT.com readers by Debtwire—the most informed news service available for financial professionals in fixed income markets across the world. www.debtwire.com

--------------------------------------------------------------------------------

The recent move by Elliott Advisors to sue Vietnam Shipbuilding Industry Group (Vinashin) could throw the company’s already contentious debt restructuring into further turmoil, Debtwire reports.

Elliott resigned last week from the steering committee for Vinashin’s USD 600m loan, signaling that the hedge fund plans to go ahead with litigation against the state-owned shipbuilder to recover interest and principal on the defaulted debt, said three creditors and a Hanoi-based source close to the company. The lawsuit would be filed in London as the loan is governed by English law, even though the majority of Vinashin’s assets are in Vietnam. Elliott officials declined to comment.

A lawsuit against Vinashin could sink a proposal from the Vietnam government – presented to creditors earlier this month – to guarantee the USD 600m loan in a restructured form, the three creditors said. Lenders had been clamoring for the government to guarantee the debt ever since prospect of a default emerged last year, but until recently the Socialist Republic refused to do so. The government issued a comfort letter when the loan was made in 2007 expressing support for Vinashin, but stopped short of an explicit guarantee.

Vinashin defaulted on the loan when it missed the first USD 60m principal amortization on 20 December 2010. The unsecured loan was to have been paid down in 10 semi-annual amortizations until 2015.

If Elliott moves ahead with its lawsuit, Vinashin will have little choice but to file for protection and rehabilitation under Vietnamese law and to seek recognition from international courts, said the source close to the company. In such circumstances, creditors to the unsecured USD 600m loan would be treated pari passu with Vinashin’s other creditors and would likely obtain much lower recoveries than from the existing restructuring offer by the ship builder, said the source close to the company and one of the creditors. Vinashin’s debt totals close to USD 4bn, said the sources.

Vinashin’s debt restructuring proposal offer – which members of the lender steering committee revealed to other lenders on a conference call two weeks ago – effectively gives preference to Credit Suisse facility lenders, said the source close. The proposal offers a recovery of around 35-40 cents on the dollar, said a second creditor. By contrast, holders of Vietnam’s unsecured local-currency bonds have been offered a recovery of around 20 cents on the dollar on their claims, said the first creditor.

Vinashin’s restructuring proposal for the USD 600m loan still falls short of creditors’ expectations and stands no chance of obtaining the required unanimous lender approval, the three creditors and another three lenders said. However, the offer represents what many creditors see as the first serious effort by the company and government to discuss the restructuring in realistic terms, according to the sources. As such, the proposal has been hailed as a significant move forward that provides a baseline from which creditors can negotiate material improvements.

Vinashin offer

Vinashin’s proposal consists of two options, the first of which is the redemption in cash at 35% of face value, five creditors said. The second option is for the existing USD 600m loan facility due in 2015 to be rolled into a new 13-year government-guaranteed bullet facility with no principal haircut but also no interest.

The company’s restructuring plan came in response to a proposal by the steering committee – consisting of the loan’s arranger, Credit Suisse, as well as Depfa Bank, Elliott Advisors and Maybank – which envisioned a somewhat better deal, the sources said. The creditors’ had proposed for the loan to be rolled into a new USD 600m, 15-year bullet facility with a margin of Libor+ 150bps, which would step up by 50bps in the years 11-15, the sources said. However, interest would be capitalized, the sources added.

The loan traded in the low 50s in September prior to the restructuring proposals being shared with the broader creditor group, the first two lenders said. The loan was indicated last week in the 40s by two US banks.

Elliott in June invited other creditors to join it in possible legal action against Vinashin in London. But the hedge fund has subsequently instructed its legal counsel, Bingham McCutchen in London, that is not allowing other creditors to join it in the legal action, said the first three sources. Elliot’s go-it-alone strategy signals that the fund is not seeking to share with other lenders any proceeds it might receive if it obtains a money judgment from the UK High Court, the three sources added. The fund’s about-face has prompted other lenders to investigate the loan documents to determine whether Elliot could be forced to share any proceeds it might obtain from a judgment or out-of-court settlement with Vinashin, the three said.

Although a creditor steering committee was appointed late last year, lenders have been divided over how aggressively to pursue their claims. Some hedge funds and proprietary trading desks favored a more confrontational approach, while commercial banks hesitated out of concern for relationships in Vietnam (Standard Chartered resigned from the steering committee in April). As a result, a creditor vote in March failed to generate the two-thirds majority required to call subsidiary guarantees.

Credit Suisse, Depfa Bank and Maybank officials all declined to comment.

--------------------------------------------------------------------------------

For more information or to inquire about a trial please email sales@debtwire.com or call Americas: +1 212-686-5374 Europe: +44 (0)20 7059 6113 Asia-Pacific: +852 2158 9731