A US bankruptcy court has opted to let the sale of Hanjin Shipping’s interest in Total Terminals International (TTI) proceed, rather than risk pushing TTI into liquidation.
On Wednesday 18 January Judge John Sherwood of the US Bankruptcy Court gave approval for the sale of Hanjin Shipping’s interest in Long Beach Terminal operator TTI to the Mediterranean Shipping Company’s (MSC) terminal subsidiary Terminal Investment Limited (TIL).
A long list of Hanjin’s creditors objected to the sale, arguing before the bankruptcy court that it was conducted in undue haste, and the US$78M cash price plus $54M in debt reduction was too low, especially in light of Hanjin’s debts. In particular creditors strongly objected to Hanjin removing any funds from the sale from the US, as required by the Korean Courts in approving the sale.
Arguing for the sale of Hanjin’s interest in TTI were attorneys for Wells Fargo, acting as Administrative Agent for a syndicate of five lenders to TTI. Documents filed with the US Bankruptcy Court in New Jersey revealthat TTI’s financial position was extremely precarious. It actually owed “in excess of $286M” and, as of December 30, 2016, was in default on its debt payments.
TTI’s banks and lenders agreed to forbear their rights and remedies in respect of the default until 20 January to allow the TTI transaction to proceed. Under the sale agreement credit and loans advanced to TTI would be transferred to the purchaser (TIL), but a lien on sale proceeds held by the banks would waived, permitting proceeds entrusted to Hanjin’s Foreign representative to be removed to Korea.
In its testimony Wells Fargo dismissed the argument that another buyer would have paid more for TTI, stating that TIL’s was in fact the only bid that was not withdrawn. Wells Fargo supported the sale to TTI because “the purchasers have presented a viable business plan that provides the most certainty that i) the volumes (the revenue) lost by TTI as a result of Hanjin’s bankruptcy can be replaced and (ii) TTI would be able satisfy its obligations to the Lenders and other secured parties under the Credit Agreement.”
Wells Fargo also noted that without a prompt sale there is an “imminent risk that TTI will run out of cash”, and claimed Hanjin’s creditors were being naive if they thought stopping the sale might result in a better outcome for anyone. “They ignore TTI’s severe liquidity crisis and the challenging circumstances faced by Hanjin in attempting to sell the Shareholder Loans and Membership Interests. Notwithstanding their rhetoric, the Objecting Parties have not and cannot propose an alternative to the sale to the Purchasers, let alone a viable one. In essence, they are rolling the dice with other people’s money. That cannot be countenanced”.
Judge Sherwood agreed, and has been quoted in the Wall Street Journal saying Hanjin accepting TIL’s offer was a “reasonable exercise of business judgement”. Effectively, it seems, container leasing companies, crane finance companies and other creditors, have been sacrificed to prevent a much wider financial conflagration that would occur if TTI was to be forced into liquidation. “Indeed, if the Objecting Parties are successful in derailing the sale, it will be a pyrrhic victory as there will be little to no value for Hanjin relating to these assets,” Wells Fargo noted.
With Hanjin's Shipping's largest US asset now out of reach, US creditors and their insurers must seek payment through teh Korean courts.
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