In re Genco Shipping & Trading Ltd.
513 B.R. 233
Bankr. S.D.N.Y.2014Background
- Genco Shipping and Trading Limited and affiliates (Genco) operate a large dry bulk fleet with highly leveraged secured debt and unsecured notes.
- Genco filed prepackaged Chapter 11 with an RSA-supported plan to convert about $1.2B of debt to equity and backstop a $100M rights offering.
- RSA allowed fiduciary out for pursuing alternative transactions; termination triggers a $26.5M fee if a sale occurs.
- Plan contemplates equity recovery mainly via warrants and debt-to-equity conversions, with senior creditors and noteholders receiving most value; equity is treated as out of the money.
- The primary dispute centers on valuation methods (NAV, DCF, comparable companies, precedent transactions) and whether equity should receive any recovery, as well as the plan’s good faith and third-party releases.
- Court trial focused on whether Genco’s value exceeds $1.48B, the amount that would give any recovery to equity under the plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NAV can anchor the plan’s valuation under 1129(b). | Equity favors NAV as most appropriate for dry bulk assets. | NAV is not sole measure; NAV undervalues ongoing value and going-concern factors. | NAV should be given substantial weight but not sole basis; other methods support no equity recovery. |
| Whether the plan is fair and equitable to impaired equity under 1129(b). | Valuation shows potential equity recovery under certain methods. | Valuation shows equity is out of the money; plan satisfies fair and equitable treatment. | Court finds equity out of the money; plan satisfies 1129(b)Fair and equitable requirement. |
| Whether DCF is appropriate given dry bulk market volatility. | DCF reflects forward earnings and supports higher equity value. | DCF projections are unreliable in volatile shipping; other methods preferred. | DCF rejected as unreliable; NAV and comparable analyses favored. |
| Whether the plan was proposed in good faith under 1129(a)(3). | Management manipulated projections to benefit equity. | Plan process was thorough, arms-length, with reasonable valuation choices. | Court finds plan was proposed in good faith and not for improper purposes. |
| Whether third-party releases comply with Metromedia and are permissible. | Unimpaired creditors should not be bound by releases; releases overbroad. | Releases allowed where consented or where substantial consideration and channeling occur. | Third-party releases approved only to the extent they meet Metromedia criteria and are supported by substantial consideration. |
Key Cases Cited
- In re Chemtura Corp., 439 B.R. 561 (Bankr.S.D.N.Y. 2010) (fair and equitable requirement; must not undervalue senior claims)
- In re Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir. 2005) (non-debtor releases analyzed under Metromedia framework)
- In re Adelphia Communications Corp., 544 F.3d 420 (2d Cir. 2008) (non-debtor releases and fairness opinions context; NAV as valuation anchor)
- In re DBSD N. Am., Inc., 634 F.3d 79 (2d Cir. 2011) (met expectations for releases and plan implementation; Metromedia guidance)
- In re Charter Communications, Inc., 419 B.R. 221 (S.D.N.Y. 2009) (confirmation standards; 1129(a)(8); 1129(b) applicability)