Mori Hamada & Matsumoto (MHM), Clifford Chance and local player Okuno have all played lead roles in the financing deal connected to the restructuring of Japan Airlines (JAL) – the largest Japanese insolvency case of a non-financial sector company
JAL commenced corporate reorganization proceedings in January 2010, establishing a new record with the largest amount of indebtedness to date – US$27.8bn for a Japanese insolvency case involving a non-financial sector company.
Upon the approval of the corporate reorganization plan by the creditors and the court, JAL raised US$4.24bn in equity capital through the Enterprise Turnaround Initiative Corporation of Japan (ETIC) on December 1, 2010. JAL then raised additional equity capital from eight investors in the amount of 13 billion JPY in March 15, 2011.
On March 28, 2011, JAL refinanced US$3.09bn of debt. This was achieved under new loan documents entered into through a syndication of 11 major Japanese banks.
The Japanese national carrier restructuring process was the first case in which ETIC has lent its support to a private company.
The MHM team was led by partners Gaku Ishiwata, Akira Marumo and Hiroko Aoyama.
Several notable structural aspects were highlighted by the lead lawyers of MHM as particularly interesting and complex. “The refinancing was structured by multiple tranches of loans with different security packages. Security interests were granted over a variety of classes of assets, using advanced legal techniques. The loan structure was also unique in that each of the lenders entered into a bilateral loan agreement, and the features of a syndicated loan transaction were partly introduced by way of an inter-creditor agreement,” MHM partner Ishiwata said. “Due to the diverse positions of the lenders, and in the absence of a lead arranger on the lenders’ side, the negotiations were conducted on a bilateral basis between the borrower and each of the lenders,” MHM partner Marumo said.
According to the firm, the loan documentation was handled by the borrower – a practice unusual in this type of transaction – with conflicting interests among the lenders successfully coordinated by the borrower.
“This transaction represents a remarkable case of a borrower succeeding in refinancing a very significant amount of debt through extremely difficult negotiations with multiple banks in order to get through reorganization proceedings in just over 1 year’s time after commencement. The successful completion of this high-profile insolvency case provides a new roadmap for an insolvent debtor in Japan to expeditiously recover from financial difficulties,” MHM partner Aoyama said.
Other counsels involved include Okuno and Partners for the Development Bank of Japan, and Clifford Chance for Japan Bank of International Cooperation and a syndicate of six other major Japanese banks.ALB
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