CASE STUDY – Korea Line
SC Lowy Korea Line Advisory and Debtor-in-Possession Financing
SC Lowy marked its arrival as a serious player in Asian debt markets after it led the re-financing and restructuring of Korea’s second-largest dry bulk shipping company. Korea Line Shipping was able to avert potential bankruptcy after funding led by SC Lowy was put in place at a critical juncture. This set the company on a course of recovery that culminated when it was later bought by South Korean SM Group.
The shipping recession that began in 2009 hit global shipping companies hard and Korea Line became Asia’s first high-profile casualty after it filed for bankruptcy in early 2011, following default on charter party payments. Thereafter Korea Line was unable to negotiate a solution with counterparties outside of bankruptcy and it entered court receivership. Despite a court appointed workout, restructuring talks with international counterparties ran into protracted difficulties, leading to a breakdown and threat of liquidation in 2012.
It was at this pivotal moment that SC Lowy stepped in as advisor and began the painstaking process of arranging Debtor-in-Possession financing (a special form of financing provided for companies in financial distress including those under Chapter 11 bankruptcy protection in the US) after buying a substantial portion of Korea Line’s distressed claims. The $85m debtor-in-possession financing structured by SC Lowy was also groundbreaking for being the first of its kind to be ever arranged in South Korea.
This financial commitment was only possible after working with the company to analyze its financial and operational situation in order to create a sustainable recovery plan. The liquidity infusion not only helped the ailing company’s cash flow management but also enabled the company to move forward with its restructuring plans and win the support of creditors (many of whom were ship-owner counterparties), convincing them that the preferred option was to support the restructuring, rather than a wasteful and time consuming liquidation. As the sole advisor, SC Lowy was able to hold constructive dialogues with different classes of trade creditors in Europe, Asia and the US and following delicate negotiations reach a settlement across multiple charter claims.
With its restructured finances and new cash resource, Korea Line was able to grow – and attract buyers. South Korean SM Group bought a majority stake in September 2013. At the same year, Korea Line returned to profitability and was able to begin rebuilding its fleet. More recently, it has won lucrative long-term charter contracts to transport dry bulk to South Korea. Not only did Korea Line survive but it is now a profitable enterprise.
We are extremely pleased that the ‘Debtor in Possession Financing’ arranged for Korean Line was awarded “Deal of the Year 2013,” by the prestigious Atlas Turnaround Awards. But more importantly, the transaction saved an important company from an unnecessary and wasteful bankruptcy thereby providing considerable benefit to employees, shareholders and creditors. It also bestowed on SC Lowy the reputation as a trusted partner in Korean finance.