SC LOWY ADVISORY AND SUPPORT TO CREDITORS’ GROUP
STX Pan Ocean Co, South Korea’s biggest commodities and dry bulk shipping line, filed for Korean bankruptcy protection in June 2013. A decrease in traffic volume and ocean freight fares due to a worldwide recession led to a liquidity crisis, causing Pan Ocean’s bankruptcy. Moreover, Pan Ocean had chartered-in a significant portion of its fleet at the high rates of the boom markets. When rates dropped sharply and remained at persistent lows, the company faced a liquidity crisis and an eventual bankruptcy.
As it had in an earlier landmark transaction with Korea Line, SC Lowy entered the creditor negotiation process after buying a substantial portion of the shipping line’s distressed debt (SC Lowy eventually surpassed KDB as Pan Ocean’s largest creditor). The objective was to keep this creditor group aligned and successfully argue the merit of unity toward a goal of keeping the company intact, and by consequence arriving at the best outcome for the greatest possible number of creditors.
SC Lowy was able to do this by leveraging its own strong balance sheet to provide liquidity for creditors eager to exit the situation. Had such creditors stayed involved, they could have been an impediment to a unified solution for the company. Moreover, SC Lowy was able to draw on its deep experience in Korea, following a successful advisory and financing with Korea Line and purchase of Choeun Savings Bank in 2014 – which made SC Lowy one of the few foreign companies to obtain a banking license in the nation. Pan Ocean’s creditor group led by Korea Development Bank and SC Lowy acted quickly to hammer together a restructuring plan that was eventually approved by creditors in November 2013. Under the plan, unsecured creditors received 67 percent of their original debt in new, freely tradable stock and 33 percent in new 10 year back-ended debt.
Just over a year later, Pan Ocean’s creditors agreed to a Won1tr ($910m) purchase of Pan Ocean by South Korean poultry and animal-feed company Harim Group and private equity firm JKL Partners, along with a further debt restructuring of the 10 year back-ended debt that was previously issued in the prior restructuring plan. The Harim and JKL Partners M&A deal closed in June 2015, with unsecured creditors receiving an 83% recovery on their 10 year back-ended debt, which included 27.4% paid in cash through M&A process and the remainder as freely tradable equity in Pan Ocean. 87% of all creditors and 61.6% of company shareholders approved the deal.
SC Lowy’s advisory and support to Pan Ocean was awarded Best Restructuring Deal by Lloyd’s List and The Asset in 2015.