Willkie’s London and New York offices advised a syndicate of lenders on the refinancing of two facility agreements, secured by vessels owned and chartered by an international container ship operator.
Danaos Corporation (NYSE: DAC), based in Greece and headed by well-known shipping magnate Dr. John Coustas is, together with its international subsidiaries (the “Danaos Group”), one of the world’s largest owners of container ships, with a fleet of some 55 vessels. On 10 August 2018, Danaos and lenders holding $2.2 billion of its debt completed an out-of-court restructuring that will strengthen the Danaos Group’s capital structure.
The implementation of a comprehensive debt refinancing agreement with the company’s lenders, as well as its major shareholder and the manager of its containership fleet, has resulted in a significant debt reduction for Danaos of approximately $551 million, the resetting of financial and restrictive covenants in its credit facilities, modified interest rates and amortization profiles and the extension of existing debt maturities by approximately five years, to December 31, 2023.
A previous restructuring was completed in 2011, but the subsequent collapse of Hanjin Shipping (one of the Danaos Group’s major charterers) in April 2016 and the decline in container ship market conditions meant that the Danaos Group found itself once more in a position where it needed to restructure its financial obligations.
The latest comprehensive debt refinancing is the culmination of a lengthy negotiation process, for which Willkie was first retained in March 2017 by a group of lenders holding $290 million of secured facilities arranged by ABN AMRO Bank N.V. and maturing on December 31, 2018 (known as the “Pool C Lenders”).
The Pool C facilities governed loans secured by, among other things, vessels owned by subsidiaries which had guaranteed the Pool C Lenders’ debt. Tough conditions in the shipping market and a resulting liquidity squeeze led to the Danaos Group breaching certain financial covenants in its credit facilities in September 2016. Waivers in respect of financial covenant breaches expired on 1 April 2017 but were not extended and so remained outstanding during negotiations. Against this backdrop, Danaos Group (advised by Evercore, Skadden, Morgan Lewis, Watson Farley Williams and Alix Partners) needed to reach a consensual deal before its financial condition created a “burning platform”, necessitating a chapter 11 filing. Along with financial advisors PJT Partners, Willkie negotiated and agreed a forbearance and term sheet for the Pool C Facilities in May 2018, followed by a binding contract on 19 June 2018 (the implementation of which was inter-conditional upon the agreements reached between Danaos and other lenders). Ince & Co. were brought on board as specialist maritime counsel to the Pool C Lenders to advise on, amongst other matters, the treatment of mortgages over Liberian and Cypriot flagged vessels.
The Willkie team included partners Graham Lane and John Longmire and associates Alexander Roy and Ji Kim from the Business Reorganization and Restructuring Department, with assistance from partner Sean Ewen and associate Aymen Mahmoud from the Corporate & Financial Services Department.