/raid1/www/Hosts/bankrupt/TCRLA_Public/190920.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, September 20, 2019, Vol. 20, No. 189
Headlines
A R G E N T I N A
CHUBUT PROVINCE: Fitch Lowers Issuer Default Rating CC
B R A Z I L
BRAZIL: Has Lost R$3.5-Bil. in Trade Balance with USA and Israel
ELETROBRAS: Moody's Alters Outlook on Ba3 CFR to Positive
FOREVER 21: In Talks to Give Landlords Stake in Bankruptcy
GRUPO MORENO: Files for Bankruptcy Protection
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: UN Warns Drought Has Come to Stay
J A M A I C A
JAMAICA: Gets $50 Million Conditional Credit Line From IDB
M E X I C O
RAMOS ARIZPE: Moody's Affirms Ba3 Global Scale Issuer Rating
T R I N I D A D A N D T O B A G O
SPORTS COMPANY: In Financial Woes, Owes T&TEC $10 Million
V I R G I N I S L A N D S
KINGATE EURO FUND: Chapter 15 Case Summary
KINGATE EURO: U.S. Recognition Hearing Scheduled for Oct. 3
- - - - -
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A R G E N T I N A
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CHUBUT PROVINCE: Fitch Lowers Issuer Default Rating CC
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Fitch Ratings downgraded the Province of Chubut to 'CC' from 'CCC'.
The actions follow Fitch's latest actions on Argentina's sovereign
ratings on Sept. 3, 2019.
KEY RATING DRIVERS
Local and regional government ratings are typically capped by the
sovereign rating, according to Fitch's LRG criteria. The downgrades
of Chubut's Issuer Default Ratings and standalone credit profile to
'CC' and 'cc', respectively, reflect the province's increasing need
for support from the national government, including anticipated
fund transfers, in light of reported delays in salaries and other
short-term financial pressures. Therefore, Fitch considers Chubut's
risk profile higher than Argentina's. Fitch relied on its rating
definitions to position these ratings.
Fitch upgraded Argentina's Long-Term IDRs to 'CC' on Sept. 3
following the sovereign's payment of short-term debt instruments on
Aug. 30 under revised terms imposed via presidential decree, which
effectively constituted the conclusion of an exercise that Fitch
categorized as a 'distressed debt exchange'.
Chubut's USD650 million bonds are rated at the same level as the
province, although those bonds are secured by oil royalties and
have presented coverage ratios above the minimum required in a
segregated fiduciary fund. Next debt service is scheduled for
October 2019 for approximately USD12.5 million. Principal starts
amortizing in October 2020.
Considering the current structural weaknesses of macroeconomic
recession, structurally high inflation, sharp currency
depreciation, and market uncertainty, Fitch classifies Chubut's
Risk Profile as 'Vulnerable'.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for Chubut include:
-- A sharp currency depreciation of the peso during 2019-2021.
-- A real term decrease in taxes and federal transfers.
-- Real-term salary adjustments.
-- Interest expenditure and debt amortization is adjusted to
equal ARS projected payments considering debt conditions and
Fitch's FX projections.
RATING SENSITIVITIES
A downgrade of Argentina's rating and a distressed debt exchange
declaration by the province would negatively impact Chubut's IDRs
and senior secured notes rating.
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B R A Z I L
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BRAZIL: Has Lost R$3.5-Bil. in Trade Balance with USA and Israel
----------------------------------------------------------------
Richard Mann at Rio Times Online reports that the two countries
most aligned with the government of Jair Bolsonaro and with the
greatest influence in the chess of world geopolitics have caused
losses in trade to Brazil so far in 2019.
From January and August of this year, the Brazilian trade balance
was negative by US$352 million (R$1.4 billion) and US$519 million,
respectively, with the United States and Israel, according to Rio
Times Online.
As reported in the Troubled Company Reporter-Latin America on May
27, 2019, Fitch Ratings has affirmed Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a Stable
Outlook.
ELETROBRAS: Moody's Alters Outlook on Ba3 CFR to Positive
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Moody's Investors Service affirmed the Ba3 rating of Centrais
Eletricas Brasileiras SA-Eletrobras, including the company's senior
unsecured debt and corporate family rating. At the same time,
Moody's affirmed the company's baseline credit assessment at b1.
The outlook for all ratings was changed to positive from stable.
Affirmations:
Issuer: Centrais Eletricas Brasileiras SA-Eletrobras
Corporate family rating (CFR), Affirmed at Ba3
$1750M Senior Unsecured Global Notes due 2021, Affirmed at Ba3
Outlook Action
Issuer: Centrais Eletricas Brasileiras SA-Eletrobras
Outlook: Changed to Positive from Stable
RATINGS RATIONALE
The change in Eletrobras' ratings outlook to positive reflect the
ongoing progress of the company's multi-year business plan to
enhance internal controls and improve profitability, including the
divesture of non-core assets such as the sale of Amazonas
Distribuidora de Energia (Amazonas D) in April, and the increasing
diversification of its funding base, evidenced by the refinancing
of U$1.0 billion notes in July with long-term debentures issued in
local currency. Importantly, Moody's anticipates that such trends
will continue sustaining a gradual improvement in Eletrobras'
credit profile, as the company undertakes a number of additional
efficiencies improving actions and governance developments over the
next 12-18 months.
Eletrobras' Ba3 rating incorporates a notch uplift from its
stand-alone credit profile, based on Moody's joint default analysis
for the company as a government-related issuer. This rating
approach incorporates Moody's views on the credit profile of the
Government of Brazil (Ba2 stable), as well as its view on the high
level of credit dependence between the two entities and a moderate
probability of the government providing extraordinary support to
the company in case of need.
Eletrobras b1 BCA reflects the company's credit profile on a
stand-alone basis without the government's support considerations.
This assessment considers the company's dominant position in the
Brazilian electricity market, accounting for 30% of the country's
generation capacity and 47% of the installed transmission lines,
along with its strategic role for regional economic development
given the participation in most of the country's relevant energy
projects. The company's high leverage and large contingent
liabilities constrain this assessment, as does the execution risk
associated to its significant investment plan through 2023.
In the 12 months ended June 30, 2019, Eletrobras reported adjusted
net revenues of BRL22.6 billion, for which Moody's calculates an
adjusted EBITDA margin of 40.1%, compared to 20.5% in 2017. The
successful sale of unprofitable businesses, along with other
initiatives to improve efficiency gains, will likely sustain a
gradual improvement in the company's recurring EBITDA, which
Moody's estimates in range of BRL8.8 to BRL9.5 billion over the
next 12 months. Further supporting the company's operating cash
generation are the compensation revenues of the transmission
concessions renewed in 2013, in the amount of approximately BRL3.5
billion per year that the company is collecting since mid-2017 and
until 2024.
On the other hand, a high debt burden continues to strain
Eletrobras credit profile. Following recent refinancing activities
Moody's-adjusted debt for Eletrobras reached BRL55 billion, which
includes BRL11.5 billion in past due obligations with suppliers,
mainly with Petroleo Brasileiro S.A. - PETROBRAS (Ba2, stable),
that remained with the company following the sale of its
distribution assets. Part of those liabilities are covered by
regulatory claims and reimbursement from sector charges, but the
exact credit amount and the timing for compensation depends on
regulatory approval. Total adjusted debt also includes BRL4.2
billion in liabilities related to the Global Reversal Reserve
(RGR), BRL2.8 billion in pension liabilities and BRL220 million in
refinanced taxes.
Additionally, Eletrobras is exposed to several claims and legal
disputes, of which the most relevant is associated to
reimbursements of compulsory sector loans charged to industrial
clients during the 1980's. As of June 2019, the company recorded
BRL25 billion in provisions for probable losses, of which BRL865
million likely due in the next 12 months. Eletrobras' also reported
BRL33.6 billion in off-balance sheet obligations, related to
corporate guarantees provided to project debt issuances of
non-consolidated subsidiaries. Although not included in
Moody's-adjusted leverage metrics, the prospective impact of those
liabilities was considered to its analysis of the company's
liquidity and future cash flows.
Moody's-adjusted net debt/EBITDA ratio for Eletrobras will likely
reach 6.3x by year-end 2019, up from 5.3x in December 2018. The
positive outlook on the ratings incorporate a gradual improvement
in the adjusted net debt/EBITDA ratio to 5.0x over the next four
years. In terms of cash flow metrics, Moody's anticipates cash flow
from operations pre-working capital (CFO pre-WC) to net debt to
deteriorate in 2019, followed by an improvement to 6%-9% through
2022, with cash interest coverage in the range of 1.5x to 2.0x over
the same period. The company's leverage could improve earlier than
anticipated if Eletrobras effectively receives all the regulatory
credits or if there is an equity capitalization model to support
the company's investment plan.
Eletrobras' liquidity position is currently adequate. Moody's
expects the company's operating cash generation enough to cover
mandatory cash obligations and maintenance capital expenditures of
its existing assets in the next 12-18 months. In recent years, a
low investment rate and the asset divestiture program helped to
alleviate the pressure on liquidity. But, the company's multi-year
business plan considers a much larger investment pace, which will
require incremental external sources of cash that will limit its
deleveraging pace. The company's 2019-2023 budget considers BRL30.2
billion in total capital investments, of which 40% is related to
the construction work for completing Angra 3, a 1.4 gigawatt
nuclear power plant.
The government has a plan to dilute its participation in Eletrobras
through an equity offering that may also provide the company
additional resources to support its investment strategy, however
the terms and conditions for this capitalization plan remain
uncertain. A privatization will lead us to reassess the assumptions
on the dependence and support levels to Eletrobras rating, based on
the expected governance under the new ownership structure. A change
of control would also entail significant execution risks, as
related to contract renegotiations and adjustments in the
concession framework. Hence, any potential benefits of the
privatization have not been incorporated into Eletrobras' ratings
at this time.
WHAT COULD CHANGE THE RATINGS UP/DOWN
A rating upgrade will be considered with a sustained trend of
stronger cash generation within the existing businesses or the
perception of further improvement in the company's financial
profile. A material reduction of the uncertainties around the
company's contingent liabilities and more visibility on the funding
to support its investment strategy may also prompt an upgrade of
Eletrobras' ratings. Quantitatively, the company's BCA could be
upgraded if: the Cash Flow (CFO) pre-WC to net debt ratio exceeds
7% (5.2% as of June 30, 2019), and the Interest Coverage Ratio
moves above 1.8x (1.4x as of June 30, 2019) on a sustainable basis.
A rating upgrade would also be considered if there is an upgrade on
the sovereign rating.
Negative rating pressure is unlikely in the near term, but it could
result from a rapid deterioration in the company's liquidity
profile resulting from unexpected large cash outlays or
deterioration in its operating performance. Moody's would consider
a downgrade if such pressures were not mitigated by an
extraordinary financial support from its shareholders or resources
from upcoming asset sales. A weakened Moody's perception on the
support of the regulatory framework could also prompt a downward
action, as well as deterioration in the sovereign's credit quality.
Quantitatively, the company's BCA could be downgraded if: the CFO
pre-WC to total net debt ratio falls below 5%, or the Interest
Coverage Ratio decreases below 1.2x for two consecutive periods.
Headquartered in Rio de Janeiro, Eletrobras is a holding company
controlled by Brazil's federal government with 51% of Eletrobras'
voting capital and 41% of its total capital. Eletrobras is the
country's largest generation and transmission company. In the last
twelve months ended June 30 2019, the company's adjusted net
revenues reached BRL22.6 billion.
The methodologies used in these ratings were Unregulated Utilities
and Unregulated Power Companies published in May 2017, and
Government-Related Issuers published in June 2018.
FOREVER 21: In Talks to Give Landlords Stake in Bankruptcy
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Forever 21 Inc. is in talks to give a stake in fast-fashion
retailer to its two largest landlords as part of a restructuring
that would allow co-founder Do Won Chang to retain ownership,
Bloomberg News reported, citing people familiar with the matter.
Forever 21 has ongoing discussions with Simon Property Group Inc.
and Brookfield Property Partners LP about the proposal, which would
be part of a bankruptcy filing, said the people, according to
Bloomberg.
Forever 21 is preparing to file for bankruptcy as soon as this
month, ideally with a restructuring plan in place, the people said,
according to Bloomberg. Company advisers have been working on
obtaining a bankruptcy loan package that would give the retailer
about $75 million to continue operations during the case, Bloomberg
previously reported.
Bloomberg notes that Simon and General Growth Properties Inc., now
part of Brookfield, teamed up to buy most of bankrupt teen clothing
chain Aeropostale three years ago. They've since sat on the
sidelines as retailers liquidated, but Simon has publicly said it's
open to doing similar-type deals going forward.
In July, Forever 21 reportedly hired Latham & Watkins LLP for
restructuring advice. In August, the retailer hired RCS Real
Estate Advisors to help it re-evaluate its store portfolio.
About Forever 21
Forever 21, Inc., headquartered in Los Angeles, California --
http://www.forever21.com/-- is a fashion retailer of women's,
men's and kids clothing and accessories and is known for offering
the hottest, most current fashion trends at a great value to
consumers. This model operates by keeping the store exciting with
new merchandise brought in daily. Founded in 1984, Forever 21
operates more than 815 stores in 57 countries with retailers in the
United States, Australia, Brazil, Canada, China, France, Germany,
Hong Kong, India, Israel, Japan, Korea, Latin America, Mexico, the
Philippines and United Kingdom.
Privately held Forever 21 is owned by its founders, Do Won and Jin
Sook Chang. A husband and wife team, the Changs immigrated from
South Korea in 1981 and started the chain three years later with a
single 900 square-foot store in Los Angeles and only $11,000 in
savings.
Forever 21 has been struggling with a severe drop in traffic amid
the shift to online and increased competition from other
retailers.
Forever 21 has annual sales of $3.4 billion and 30,000 employees.
GRUPO MORENO: Files for Bankruptcy Protection
---------------------------------------------
Brazilian sugar and ethanol maker Grupo Moreno, which operates
three plants in the heart of Brazil's sugarcane belt, has filed for
bankruptcy protection, the law firm advising the company told
Reuters.
Marcelo Teixeira at Reuters reports that the move underscores
problems caused by poor margins in the sugar business in recent
years and a depressed domestic ethanol market between 2011 and
2015, when the Brazilian government kept gasoline prices
artificially low to fight inflation, turning ethanol margins
negative.
Grupo Moreno has engaged in debt restructuring talks with banks and
potential investors for months, according to a source who has
advised some of the creditors, according to Reuters.
At one point, the person said, the company was close to a deal,
which would include the sale of some assets and new terms for its
outstanding debt, the report notes.
Moreno's debt is estimated by the source at around 2 billion reais
($483.44 million), the report says.
"In the end, they decided to file for bankruptcy protection. I
think it is a bad decision. Hardly any company in the sector that
went that way managed to recover," the source said, asking not to
be named because the restructuring talks were private, the report
discloses.
The three plants operated by Grupo Moreno have a capacity to
process 13 million tons of sugarcane per year, the report relays.
The company also owns agricultural land and power generation
installations that use biomass -- resulting from sugar and ethanol
production -- as fuel, the report notes.
Felsberg Advogados, the law firm advising Grupo Moreno, said in the
bankruptcy filing that more than half of the sugar company's total
debt is in the hands of banks, without specifying the nature of the
other debt obligations, the report discloses.
It said expected economic growth and likely higher demand for
ethanol in Brazil in coming years would allow the company to
recover, once it can free itself of the high costs associated with
current debt, the report adds.
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D O M I N I C A N R E P U B L I C
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DOMINICAN REPUBLIC: UN Warns Drought Has Come to Stay
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Dominican Today reports that United Nations Food and Agriculture
Organization (FAO) representative in the Dominican Republic,
Carmelo Gallardo, warned that the drought has come "to stay" in the
country.
"Drought, in my opinion, has come to stay. The long periods of
drought, unfortunately, are part of the consequences of climate
change and we have to adapt," Gallardo told reporters before
participating in the XXIX Meeting of the Regional Committee on
Agricultural Statistics and Food Security for Latin America and FAO
Caribbean, according to Dominican Today.
He said that it's necessary to complement the actions currently
being carried out by the Government with initiatives aimed at
prevention and stressed the importance of defining, from
cooperation, an "array of good practices to maintain good
production even in conditions of drought," the report notes.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district.
The Troubled Company Reporter-Latin America reported on April 4,
2019 that the Dominican Today related that Juan Del Rosario of the
UASD Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Standard & Poor's credit rating for Dominican Republic stands at
BB- with stable outlook (2015). Moody's credit rating for Dominican
Republic was last set at Ba3 with stable outlook (2017). Fitch's
credit rating for Dominican Republic was last reported at BB- with
stable outlook (2016).
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J A M A I C A
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JAMAICA: Gets $50 Million Conditional Credit Line From IDB
----------------------------------------------------------
Jamaica will bolster the private sector by fostering productivity
and innovation with a $50 million conditional credit line with the
Inter-American Development Bank (IDB).
The first individual operation for $25 million will promote
sustainable and robust growth among startups and Micro, Small and
Medium Enterprises (MSMEs) in Jamaica.
Jamaica's productivity growth and innovation challenges requires a
long-term vision of identifying and promoting high-growth potential
opportunities, as well as flexibility to accommodate to the rapidly
changing technological environment that is affecting the private
sector globally.
The project aims to promote innovation and productivity among
established MSMEs with high growth potential; promote sustainable
growth in scalable startups; and create a sustainable pipeline of
high-growth potential startups. This will allow MSMEs to use inputs
and factors in more productive ways (improving productive
processes, creating new products, and adopting more efficient
technologies, among others), enabling faster growth.
"New businesses make an economy more vibrant," said Therese Turner-
Jones, IDB country representative for Jamaica and general manager
of the Country Department Caribbean Group (CCB). "This injection
of funds will help build Jamaica's entrepreneurial ecosystem,
unleash the creativity of the people, and contribute to economic
growth as well as improve the lives of Jamaicans."
The beneficiaries of the project will be MSMEs, scalable startups,
new startups with high growth potential and entrepreneurs with
sustainable business ideas, who will receive technical and
financial support to accelerate operations and technical assistance
to scale-up services (outreach to markets, mentoring and
governance, among others). The program will capitalize a Sidecar
Fund providing matching grants for ventures that are supported by
an angel investor according to the Development Bank of Jamaica
Limited Venture Capital and Private Equity Investment Policy. The
Venture Capital Fund will be managed by a Fund Management Firm,
selected through a competitive process.
In addition, it will benefit public and private institutions that
conform the innovation and entrepreneurship ecosystem such as
incubators, accelerators, business support accelerators, academia
and technological transfer offices, that will be strengthened with
the program.
The program will involve innovation in emerging technologies such
as Manufacturing 4.0, electronics, artificial intelligence, big
data, cyber security and biotechnology among others will be
prioritized, as well as subprojects with potential to solve
problems in areas such as climate change and gender inclusion and
diversity.
The IDB credit line loans are for 25-years terms, with a 5.5-year
grace periods and an interest based in LIBOR. The executing agency
will be the Development Bank of Jamaica Limited.
As reported in the Troubled Company Reporter-Latin America on June
27, 2019, RJR News said that Steven Gooden, Chief Executive
Officer of NCB Capital Markets, is warning that the increasing
liquidity in the Jamaican economy might result in heightened risk
to the financial market if left unchecked. This, he said, is
against the background of the local administration seeking to
reduce the debt to GDP to 60% by the end of the 2025/26 fiscal
year, which will see Government repaying more than J$600 billion
which will get back into the system, according to RJR News.
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M E X I C O
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RAMOS ARIZPE: Moody's Affirms Ba3 Global Scale Issuer Rating
------------------------------------------------------------
Moody's de Mexico S.A. de C.V. affirmed the ba3 baseline credit
assessment and the Ba3/Baa1.mx (Global Scale, local currency/Mexico
National Scale) issuer ratings of the municipality of Ramos Arizpe.
At the same time, the outlook on the rating was changed to stable
from negative.
RATINGS RATIONALE
RATIONALE FOR THE STABLE OUTLOOK
The change of outlook to stable from negative reflects the
improvements in the municipality's cash financing balance and
liquidity, easing downward credit pressure previously noted by
Moody's. In 2018, Ramos Arizpe's cash financing balance increased
to 7.7% of its total revenues, an improvement from -13.2%
registered in 2017 and higher than the -4.4% average registered
across 2014-2017. This strong level helped Ramos Arizpe's liquidity
to return to historical levels, registering a cash to current
liabilities ratio of 0.47 times (x), an improvement from the 0.13x
registered in 2017 and higher than the 0.24x average from
2014-2017.
While some volatility will persist, Moody's expects that in 2019
and 2020 Ramos Arizpe's financial balances will maintain similar
levels to that of 2018, around 6.5% of the municipality's total
revenues, given a more stable capital expenditure. Moody's also
expects that this will further support the improved liquidity
position, forecasting an average cash to current liabilities of
0.78x in 2019 and 2020.
RATIONALE FOR THE AFFIRMATION OF THE RATING
The affirmation of Ramos Arizpe's Ba3/Baa1.mx ratings reflects the
municipality's strong gross operating balances (GOB), very low debt
level, high own source revenues collection, as well as the absence
of contingent liabilities related to pensions, its water company
and labor lawsuits.
In 2018 Ramos Arizpe's GOB continued to be very strong, standing at
13.4% of its operating revenues, triggered by an important growth
in both the property tax collection and non-earmarked transfers or
"participaciones" of 9.3% and 19.7%, respectively, as well as a
significant reduction in the operating expenditures of -10%.
Additionally, own source revenues collection represented a
significant 48.8% share of its operating revenues from 2014-2018.
Moody's projects that the GOB and the own source revenues will be
equivalent to 14.4% and 47.4% of the operating revenues in 2019 and
2020.
The municipality's debt is low and continues a declining trend. As
of June 2019, net direct and indirect debt was equal to 11.6% of
operating revenues. For 2019 and 2020 Moody's forecasts that debt
levels will reach a very low 3.5% of operating revenues, given the
municipality has no plans to acquire new short or long-term debt in
these two years.
In contrast with other municipalities, Ramos Arizpe currently does
not present contingencies related with pensions, labor lawsuits or
its water company.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
In Moody's assessment, environmental and social considerations are
not material to the ratings. Governance considerations are material
to Ramos Arizpe's ratings. Governance and management is considered
relatively weak, similar to other Mexican peers, reflects
relatively poor transparency, as evidenced by delays in the
publishing of financial statements, weak internal controls on
financial planning leading to volatile outcomes and a moderately
developed policy framework for debt management.
WHAT COULD CHANGE THE RATING UP OR DOWN
If the municipality maintains positive financial balances and
records a strengthening of its liquidity position, the ratings
could face upward pressure. On the other hand, if the liquidity and
the cash financing balances deteriorates, then Ramos Arizpe's
ratings would face downward pressure.
The principal methodology used in this rating was Regional and
Local Governments published in January 2018.
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T R I N I D A D A N D T O B A G O
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SPORTS COMPANY: In Financial Woes, Owes T&TEC $10 Million
---------------------------------------------------------
Trinidad Express reports that the financial situation at the Sports
Company of Trinidad and Tobago (SporTT) is dire.
The company owes T&TEC $10 million, according to Trinidad Express.
Its fiscal allocation for 2019 fell far short of its expenses,
making proper maintenance of sporting facilities impossible, the
report notes.
Chair of the Public Administration and Appropriations Committee,
Bridgid Annisette-George, said committee members visited the
aquatic centre and the cycling velodrome and were disappointed to
see a lot of the plumbing for carrying wastewater disconnected. She
said both centers were initially seen as part of the national pride
when they were constructed, the report discloses.
In response, acting permanent secretary in the Ministry of Sports
and Youth Affairs, Farook Hosein, said: "The recurrent budget of
SporTT is very limited and it has to be managed because there are a
number of cost items that fall under this budget. It is always a
struggle in terms of the various items that fall under the
recurrent budget in terms of salaries for staff, facilitating the
national governing bodies and the maintenance of the facilities. In
the current fiscal year, it is $60 million (allocated) but
projected expenditure required to cover all the needs is about $70
million more. So we have the challenge of managing the
expenditure," the report relays.
===========================
V I R G I N I S L A N D S
===========================
KINGATE EURO FUND: Chapter 15 Case Summary
------------------------------------------
Two affiliates that filed voluntary petitions for relief under
Chapter 15 of the Bankruptcy Code:
Debtor Case No.
------ --------
Kingate Euro Fund, Ltd. 19-12852
Bison Court
P.O. Box 3460
Road Town, Tortola
British Virgin Islands
Kingate Global Fund, Ltd. 19-12853
Bison Court
PO Box 3460
Road Town, Tortola
British Virgin Islands
Chapter 15 Petition Date: September 5, 2019
Court: United States Bankruptcy Court
Southern District of New York (Manhattan)
Judge: Hon. Martin Glenn
Foreign Representatives: Paul Pretlove and Tammy Fu
Osiris, Coastal Buildings
Wickman's Cay II
PO Box 4857
Road Town, Tortola
British Virgin Islands
Foreign
Proceedings: Matter 2009/0163, Eastern Caribbean
Supreme Court, Virgin Islands, Com'l Div.
Matter 2009/0164, Eastern Caribbean
Supreme Court, Virgin Islands, Com'l Div.
Foreign
Representatives'
Counsel: Robert S. Loigman, Esq.
QUINN EMANUEL URQUHART & SULLIVAN LLP
51 Madison Ave, 22nd Flr
New York, NY 10010
Tel: 212-849-7444
Email: robertloigman@quinnemanuel.com
Estimated Assets: Unknown
Estimated Debts: Unknown
Full-text copies of the petitions are available for free at:
http://bankrupt.com/misc/nysb19-12852.pdf
http://bankrupt.com/misc/nysb19-12853.pdf
KINGATE EURO: U.S. Recognition Hearing Scheduled for Oct. 3
-----------------------------------------------------------
Judge Stuart M. Bernstein of the U.S. Bankruptcy Court for the
Southern District of New York will convene a hearing on Oct. 3,
2019, at 10:00 a.m., to consider the request of liquidators of
Kingate Global Fund, Ltd., and Kingate Euro Fund, Ltd., for
recognition of the proceedings in the British Virgin Islands as
foreign main proceedings.
Paul Pretlove and Tammy Fu on Sept. 5, 2019, filed Chapter 15
bankruptcy petitions for Kingate Euro Fund, Ltd., and Kingate
Global Fund, Ltd. (Bankr. S.D.N.Y. Case Nos. 19-12852 and 19-12853)
to protect a recent settlement with Irving Picard, the trustee for
the bankruptcy estate of Bernard L. Madoff Investment Securities
LLC ("BLMIS") and to ensure an orderly liquidation of the Kingate
Funds' assets
A U.S. recognition of the BVI liquidation would stay Deutsche Bank
and other creditors from pursuing litigation and collection efforts
in the U.S.
Kingate Funds
The Kingate Funds were open-ended investment funds organized under
the laws of the BVI, which held managed accounts with Bernard L.
Madoff Investment Securities LLC ("BLMIS"), the company established
and operated by Bernard L. Madoff.
Until mid-December 2008 when Madoff was arrested, the Kingate Funds
raised money through subscriptions for their shares, which they
invested by paying their surplus cash into an account managed by
BLMIS on their behalf. Each of Kingate Global and Kingate Euro
supposedly reaped profits on the investments purportedly made by
BLMIS, which their shareholders could realize by redeeming their
shares at a price proportionate to the net asset values of the
Kingate Funds from time to time.
Originally, Kingate Global was managed under "Co-Manager"
agreements by Tremont (Bermuda) Limited and Kingate Management
Limited ("KML") in Bermuda. In 2006, Kingate Global terminated the
co-manager agreement with Tremont, leaving KML as its sole
manager.
In May 2000, Kingate Euro entered into a management agreement with
KML.
Kingate Funds' Collapse
As of December 2008, almost all of the assets of the Kingate Funds
were invested with BLMIS. As a result, the arrest of Madoff and
the subsequent bankruptcy of BLMIS forced the Kingate Funds into
liquidation in the BVI.
The Kingate Funds were placed into provisional liquidation on May
8, 2009 and were ultimately wound up by orders of the BVI Court
dated June 4, 2009. By the Winding Up Orders, the BVI Court
appointed William R. Tacon and Richard F. Fogerty as joint
liquidators of the Kingate Funds (together, with their successors,
the "Joint Liquidators"). Since that time, the liquidation of the
Kingate Funds has been administered in the BVI by the Joint
Liquidators under the supervision of the BVI Court.
Shortly after their appointment, the Joint Liquidators sought and
obtained authorization from the BVI Court to commence additional
ancillary liquidation proceedings for the Kingate Funds in
Bermuda,
to aid and assist the principal liquidation proceeding in BVI (the
"Bermuda Proceedings"). The Bermuda Orders, dated Sept. 4, 2009
and issued by the Bermuda Court (i) ordered that theKingate Funds
be wound up in accordance with the procedures of the Bermuda
Companies Act 1981, and (ii) appointed Mr. Tacon, Mr. Fogerty, and
John McKenna as joint provisional liquidators in the Bermuda
Proceedings. By orders dated Oct. 5, 2009, Mr. Tacon, Mr. Fogerty,
and John McKenna were appointed as joint liquidators in the Bermuda
Proceedings.
Notwithstanding the opening of the ancillary Bermuda Proceedings,
the liquidation of the Kingate Funds has been centered in BVI since
at least June 2009.
On Oct. 4, 2010, the Joint Liquidators sought recognition of the
BVI Proceedings as foreign main proceedings from the English Court
pursuant to article 15 of the UNCITRAL Model Law on Cross-Border
Insolvency Regulations 2006. The English Court entered orders on
Dec. 9, 2010 granting recognition of the BVI Proceedings as foreign
main proceedings as of Dec. 2, 2010.
Clawback Proceedings and Madoff Settlement
On April 17, 2009, the Madoff Trustee filed a complaint commencing
proceedings against the Kingate Funds under various sections of the
Bankruptcy Code and the New York debtor and creditor law, asserting
claims to avoid and claw back $398,797,047 from Kingate Global and
$527,554,858 from Kingate Euro (the "Clawback Proceeding").
The Madoff Trustee also sought to equitably subordinate the claims
(the "Customer Claims") filed by the Kingate Funds in the
liquidation of the BLMIS estate for their approximately $800
million net loss (i.e., the amount they had invested with BLMIS and
never received back).
After years of litigation, the Joint Liquidators achieved
settlement of the Clawback Proceeding in June 2019. The settlement
followed a mediation in New York which took place over several days
and which was followed by several weeks of extensive negotiations.
The terms of the Madoff Settlement are set out in a settlement
agreement dated June 26, 2019. The Settlement Agreement is subject
to a number of conditions precedent before it becomes final and
binding. One condition is that the Madoff Trustee obtains approval
of the Settlement Agreement from this Court, which is presiding
over the SIPA Proceeding.
The U.S. Court entered an order approving the Settlement Agreement
on August 6, 2019. The Settlement is also conditional upon the
Joint Liquidators obtaining sanction from both the BVI and Bermuda
Courts to enter into the Settlement Agreement.
The Joint Liquidators have filed applications to both the BVI and
Bermuda Courts for sanction, and are now awaiting hearings. Under
the Settlement Agreement, Kingate Global will receive an allowed
claim in the BLMIS proceeding in the amounts of $950,401,414 and
Kingate Euro will receive an allowed claim in the BLMIS proceeding
in the amount of $709,346,680. After providing for the offset of
the "Catch-up Payment" due to the Madoff Trustee on the avoidance
claims, Kingate Global will receivea remainder payment of
$262,315,130.70 from the BLMIS estate on the Closing Date (as
defined in the Settlement Agreement). Both Kingate Global and
Kingate Euro will be entitled to participate in collecting future
distributions from the Madoff Trustee.
Future distribution amounts are uncertain, of course, but could,
based on current market projections, be in the range of an
additional $79,500,000 to Kingate Global and $59,350,000 to Kingate
Euro.
Litigation With Deutsche Bank
News of the Madoff Settlement has prompted certain purported
creditors of the Kingate Funds to assert entitlement to funds
received by the Kingate Funds on account of their soon-to-be
allowed Customer Claims. In particular, Deutsche Bank ("DB"), with
whom the Joint Liquidators engaged in negotiations to sell their
claimsback in July 2011, has indicated that it intends to seek to
enforce an abandoned short form trade confirmation which the Joint
Liquidators signed on Aug. 24, 2011 (the "Trade Confirmation").
As set forth in the Trade Confirmation, the sale transaction was
subject to the execution of a Purchase and Sale Agreement ("PSA").
However, no PSA was ever signed because DB refused to discuss the
final drafting points required to complete the PSA and the deal
foundered in late 2011.
In December 2011, the Joint Liquidators, with the sanction of the
BVI Court, commenced an action in the Southern District of New York
to try to enforce DB's commitment to purchase the Kingate Funds'
Customer Claims.
In answering the complaint, DB asserted that (among other things)
the Trade Confirmation was a preliminary agreement without all
material terms, and that DB had satisfied the obligation of good
faith by negotiating for several months during 2011. DB sought a
declaration that it had no continuing obligations under the Trade
Confirmation, as the underlying deal between the Joint Liquidators
and the Madoff Trustee was not acceptable to DB.
DB's Answer and Counterclaim concluded with the following
affirmative defenses (among others):
* The Confirmation Letter, standing alone, is not a binding
agreement obligating DBSI to purchase the claims referenced
therein.
* DBSI had met all of its obligations, if any, that existed
under the Confirmation Letter.
* There was no meeting of the minds as to the nature of the
claim to be conveyed by the Funds.
Further negotiations ensued, but proved unfruitful, and the lawsuit
was dismissed, without prejudice, by a stipulation of dismissal
entered on Jan. 2, 2014. The Joint Liquidators have had limited
contact with DB during the ensuing six years.
After learning of the Kingate Funds' mediation efforts, DB's
attorneys sent a letter to the Joint Liquidators in May 2019
asserting that the Trade Confirmation remained binding on the
Kingate Funds and that DB was "ready and willing to provide support
to Kingate in the mediation or otherwise in an effort to facilitate
the resolution of the dispute between BLMIS and Kingate, and in
turn permit the transactions contemplated by the Trade Confirm to
be consummated." The Joint Liquidators responded in a letter dated
May 16, 2019, stating that the Trade Confirmation was not binding
and observing that, at that point, almost eight years had elapsed
without DB making any payment or finalizing the required
documentation.
The Debtors' Need for Recognition
Despite DB's repudiation of the earlier proposed transaction, and
the passage of many years' time, the Joint Liquidators understand
that DB may now attempt to resurrect the Trade Confirmation, based
on the increase in value of the Kingate Funds' Customer Claims.
The Joint Liquidators are concerned that DB may initiate litigation
against the Kingate Funds in the United States, in an effort to
misappropriate value that should be distributed to stakeholders in
the Kingate Funds' liquidations.
In order to protect the interests of stakeholders of the Kingate
Fundsfrom purported creditors like DB seeking entitlement to the
Kingate Funds' now-significant U.S. assets, the Joint Liquidators
seek recognition of the BVI Proceedings and protection under
Chapter 15.
The Chapter 15 petitions were signed by Paul Pretlove and Tammy
Fu.
Mr. Pretlove and Ms. Fu are managing directors of Kalo (BVI)
Limited and Kalo (Cayman) Limited respectively. Prior to renaming
the companies as Kalo in 2017, they were previously known and
operating as AlixPartners' BVI and Cayman offices and, before
that,
as Zolfo Cooper's BVI and Cayman offices.
Debtors' counsel in the U.S. cases:
Robert S. Loigman, Esq.
Scott C. Shelley
Lindsay M. Webe
QUINN EMANUEL URQUHART & SULLIVAN LLP
51 Madison Ave, 22nd Flr
New York, NY 10010
Tel: 212-849-7444
E-mail: robertloigman@quinnemanuel.com
The U.S. cases were originally assigned to Judge Martin Glenn but
were reassigned to Judge Stuart M. Bernstein.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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