The recent restructuring of Schahin II Finance Company (SPV) Limited (a Cayman Islands incorporated notes issuer) will be of particular interest to insolvency practitioners as it was one of the first times that a Cayman Islands scheme of arrangement has been used to provide debtor in possession ("DIP") priority rescue financing. This case highlights the flexible jurisdiction of the Cayman Islands with the availability of its sophisticated restructuring toolkit and may signal a new trend in cross-border restructurings.
The debt restructuring was required to be implemented by way of a Cayman Islands scheme of arrangement in order to amend and extend the terms of certain original New York law governed notes to permit a senior ranking new tranche of notes to be issued. Various events of default had occurred under the original notes indenture, meaning that the notes trustee, at the direction of a majority of the noteholders, had taken various actions, including causing a Marshalls Islands drillship (a major part of the collateral) being arrested by the UK Admiralty Court in 2015. In 2018, the UK Admiralty Court granted the notes trustee permission to begin selling the vessel however Schahin was both cash flow and balance sheet insolvent at that point.
The purpose of the restructuring was to raise new financing in order to continue to pay the very high monthly maintenance costs for the vessel which would allow the notes trustee more time to identify a suitable buyer and sell the vessel or enter into a new contract to charter the vessel. The injection of approximately US$15million in DIP financing (provided by certain noteholders who received first ranking security over the vessel and rank in priority to the notes) meant that an imminent fire sale of the drillship was avoided and the high monthly maintenance costs of the drillship would be covered. Creditors have now been given a proper chance of achieving a better return in the future. The scheme was sanctioned by the Cayman Islands Grand Court (following the approval of an overwhelming majority of noteholders at the requisite scheme meeting) and granted recognition and enforcement in the US under Chapter 15 of the US Bankruptcy Code.
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