Restructuring Adviser: Houlihan Lokey

As the end of cheap money pushes the restructuring market into a new cycle, one firm rode the crest of the burgeoning wave of global restructuring negotiations in 2018 as the geographical growth of its practice in the lean years bore impressive fruit. Houlihan Lokey is IFR’s Restructuring Adviser of the Year.

2018 was the year when Houlihan Lokey once again showcased the geographical reach, depth and flexibility of its restructuring practice.

The company advised on all the major multi-billion dollar cross-border deals that characterised the year, while also cementing its local position across EMEA, Asia-Pacific and the Americas with a deep roster of diverse transactions for both debtors and creditors.

In Europe, the firm acted for Norwegian deep-water drilling contractor Seadrill on its complex cross-border US$11bn restructuring. It also advised Greek shipping firm Danaos on its US$2.4bn restructuring and UK restaurant chain Prezzo on its £155m deal.

In the Americas, Houlihan burnished its reputation when representing creditors in the largest ever Brazilian extra-judicial reorganisation: tackling more than US$5bn of debt at Odebrecht Oil & Gas.

Elsewhere, natural resources and power continued to be an active sector for restructuring, with Australian coal mining services operator Wicet being a client as well as creditors of Westinghouse Electric.

“We are global-local,” said Joseph Swanson, senior managing director, co-head of European restructuring. ”Being local we can do smaller local transactions as well as the large global deals. We can serve clients whoever and wherever they are.”

“We have been positively surprised by activity this year.”

The past year has seen the restructuring market head towards the end of a cycle, with the decade-long hiatus in significant deal flow coming to an end as companies have begun to feel the pinch of a credit market contraction and the painful end of easy money.

Against this backdrop, Houlihan shifted slightly from its creditor-side focus in 2017 and worked on a significant and growing number of company-side mandates in 2018.

DRILLING DEEP

Seadrill was arguably the most prominent EMEA deal to close in 2018.

The Norwegian group – a casualty of the downturn in the oil price – completed its deal using a US Chapter 11 plan of organisation. This tool is increasingly being used in European restructurings, as companies struggle to bind large and diverse lender groups into debt deals.

“We had to drive the restructuring. It was hard to play a balancing act between cram-down and a deal,” said David Hilty, co-head of financial restructuring.

Under the terms of the deal Seadrill agreed to an injection of US$1.08bn of new money, equitised US$2.3bn in unsecured bond obligations and extended maturities under its secured bank facilities by around five years.

The company filed for bankruptcy protection in September 2017 with the support of 97% of its banks and 40% of its unsecured bonds. Two alternative plans were submitted before a global settlement was reached in February 2018 that had the support of 70% of the unsecured bonds.

“There were 13 different bank groups and bonds in all different jurisdictions. We had to cut lots of deals. It had to be a very measured and organised process with plenty of opportunities for checks and balances,” said Hilty.

Also in Norway, the firm advised a bondholder committee on Norske Skog through the final round of the paper maker’s laboured restructuring, which had been drawn out over four years.

Houlihan was ultimately in the decision position, advising the group of senior secured noteholders led by Oceanwood. That group ended up buying out other creditor positions and taking control of the operating company with much reduced leverage of 1.7 times Ebitda against 12 times pre-deal.

RETAIL THERAPY

Globally, retail has become the hot sector of 2018 in restructuring and here Houlihan made its mark.

The firm played a key, and very high-profile, role advising food retailer Agrokor on its €6bn restructuring. This had a political overlay as Agrokor is the largest private employer in the Balkans and one of Croatia’s most systemically important businesses, employing 60,000 staff.

The debt-for-equity deal was done under emergency legislation, dubbed Lex Agrokor. This was passed by the Croatian government and resulted in creditors taking over the company, including Russia’s Sberbank. The latter was left with a hefty 39.2% stake.

The mandate reflected Houlihan’s growing reputation in Central and Eastern Europe, where political factors play an increasing role in restructurings. It resulted from the previous relationship between managing director Gijs De Reuver and Slovenian retailer Mercator.

“Emerging markets has been the largest growing area in the market. We have the capability and resource to take advantage of that,” said Swanson. “We are active in outliers.”

In the Middle East, Houlihan continued to entrench itself following the opening of its Dubai office in September 2017 led by managing directors Arun Reddy and Joe Julian.

The duo acted for Dana Gas on its controversial US$700m restructuring, which ended in a consensual deal for the energy producer, despite the Sharjah-based company initially refusing to redeem its Islamic bonds point-blank.

Dana’s claim that the instruments were no longer sharia-compliant led to a protracted and complex legal battle in both the UK and UAE courts.

Despite this, the firm managed to draw all parties into a consensual deal. “It was a like a high-stakes poker match,” said Reddy.

AMERICAS ACTIVITY

In the Americas, Houlihan advised creditors of Odebrecht Oil & Gas on what was the first large-scale use of an extra-judicial proceeding, said Gavin Kagan, a managing director in the financial restructuring group. Under the Brazilian insolvency system the company in distress has to win creditor support before it can enter a judicial process.

The transaction is a landmark deal, said Kagan, because Odebrecht was able to keep lucrative long-term contracts in place while implementing a light-touch restructuring.

But that was easier said than done. One of the business’s biggest clients was Brazilian oil and gas giant Petrobas, itself under stress and opportunistically cancelling contracts for any technical reason at that moment. Companies in similar situations failed when long-term contracts were pulled leaving them unable to service debt.

After tense negotiations, Odebrecht reached an agreement with more than 60% of its unsecured financial creditors at the oil and gas company’s level. This included financial institutions, perpetual bondholders, banks and insurance companies.

“We kept the contracts alive and restructured using a light-touch process without holdouts,” said Kagan.

Many of the biggest transaction in 2018 were in the energy sector, continuing a trend of the previous two years. Houlihan had a hand in most.

In Breitburn Energy Oil & Gas, Houlihan advised creditors as the company restructured US$3bn in secured and unsecured debt in a Chapter 11 plan of reorganisation. The Los Angeles-based oil and gas company filed for bankruptcy protection in 2016 after oil prices fell below US$30 a barrel from more than US$100 in 2014.

The company successfully completed its reorganisation, emerging as the newly formed Maverick Natural Resources, controlled by EIG Global Energy Partners, in April. Houlihan advised the unsecured creditors’ committee. In the final deal Maverick emerged with US$105m of debt, with US$295m of available credit under a new bank credit facility.

Houlihan also advised Cobalt International Oil & Gas as it restructured US$2.8bn of debt, helping to structure and negotiate the sale of substantially all of its Gulf of Mexico assets pursuant to a bankruptcy reorganisation.

The firm advised first-lien lenders at Fieldwood Energy as the debt-strapped oil and gas driller restructured, cutting its US$3.3bn debts in half, while raising US$525m of new equity. It then went on a buying binge starting with the US Gulf of Mexico assets of Noble Energy.

It wasn’t all oil and gas, though. Houlihan also advised lenders to Weinstein Company, the movie studio whose co-chairman Harvey Weinstein was forced out amid sexual assault allegations. The company collapsed into bankruptcy selling substantially all its assets through a 363 asset sale.

Overall, Houlihan closed 59 deals in the first nine months of 2018, pulling in total fees of US$221m.