In re Genco Shipping & Trading Ltd., 509 B.R. 455

Genco Shipping and affiliates (Debtors) operate a 53-vessel drybulk fleet and were overleveraged with ~ $1.3 billion in senior secured debt and $125 million in convertible notes.
Debtors executed a Restructuring Support Agreement (RSA) prepetition (April 3, 2014) with ~98% of 2007 Facility lenders, 100% of other secured lenders, and ~82% of noteholders to implement a prepackaged plan converting ~ $1.2 billion of debt to equity and providing a fully backstopped $100 million rights offering.
RSA required Debtors to support the Prepack Plan, refrain from conflicting actions, and allowed supporting creditors to vote for and not oppose the Plan; it also included a fiduciary out for Debtors and a $26.5 million termination fee if Debtors pursued and consummated an alternative transaction.
Debtors filed a prepackaged Chapter 11 petition on April 21, 2014 and sought court approval to assume the RSA under Section 365; the court previously authorized consensual cash collateral use tied to the RSA.
Objectors (primarily equity holders including Och‑Ziff) contested prompt approval, the termination fee’s reasonableness, and asserted equity deserved greater value; supporting lenders and noteholders backed the RSA.
The Court found the RSA and termination fee were reasonable business decisions that preserve going‑concern value, facilitate a swift prepack reorganization, and do not evidence self‑dealing or undue chilling of alternative bids.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Debtors may assume the RSA under §365	Objectors: speed not justified; equity entitled to more; assumption premature	Debtors: assumption is a valid exercise of business judgment to implement consensual prepack and preserve liquidity	Court: Assumption approved — meets business judgment standard
Whether approval of $26.5M termination fee is proper	Objectors: fee unreasonable; should be tested like break‑up fee under §363/Integrated Resources	Debtors: fee is negotiated arm’s‑length, is ~2.2% of >$1.2B committed value, and protects the backstop and consensual deal	Court: Fee approved — satisfies business judgment and Integrated Resources factors
Whether the prepack timeline is unreasonably expedited	Objectors: requested more time; no irreparable harm shown	Debtors: immediate liquidity covenants, impending debt service, and risk to foreign operations warrant quick resolution	Court: Timeline reasonable and consistent with prepack practice; delay would cause irreparable harm
Whether equity holders are entitled to more value now	Objectors: equity recovers too little; RSA unfair to equity	Debtors: plan terms reflect negotiated consensual allocations; valuation and confirmation are separate issues	Court: Value objections are for confirmation, not the assumption decision; objectors retain rights at confirmation

In re Houghton Mifflin Harcourt Publishing Co., 474 B.R. 122 (Bankr. S.D.N.Y. 2012) (describing purpose and benefits of prepackaged plans)
NLRB v. Bildisco & Bildisco, 465 U.S. 513 (U.S. 1984) (§365 and business judgment standard for assumption/rejection)
Orion Pictures Corp. v. Showtime Networks, Inc., 4 F.3d 1095 (2d Cir. 1993) (summary proceeding and business judgment review under §365)
In re MF Global Holdings Ltd., 466 B.R. 239 (Bankr. S.D.N.Y. 2012) (business judgment standard for contract assumption)
Official Comm. of Subordinated Bondholders v. In re Integrated Resources, Inc., 147 B.R. 650 (S.D.N.Y. 1992) (test for break‑up/bidder protection fees)
In re Bidermann Indus. USA Inc., 203 B.R. 547 (Bankr. S.D.N.Y. 1997) (rejecting fees where deal was tainted by conflicts and self‑dealing)
In re Metaldyne Corp., 409 B.R. 661 (Bankr. S.D.N.Y. 2009) (applying Integrated Resources factors to bidder protections)