Creditors acquiring China Fishery’s Peru assets after sale process fizzles
The five-year saga of the China Fishery Chapter 11 bankruptcy filing is likely over, with an agreement between the ownership group, its major creditors, and a court-appointed trustee set to be finalized on 9 June.
Hong Kong-based Pacific Andes International, China Fishery’s parent company, filed for bankruptcy in the United States on 30 June, 2016. Its most-valued assets were its holdings in Peru, organized under the corporate name CFG Peru Singapore, which included fishmeal and fish oil producer Copeinca.
William J. Brandt, the president and CEO of financial restructuring and advisory firm Development Specialists, Inc. (DSI), was appointed as trustee over CFG Peru Singapore in November 2016 and was tasked with selling its assets in order to compensate the company’s creditors. The sale attracted global attention from parties interested in entering Peru’s lucrative fishmeal sector, but the process dragged on for years as the company’s complicated financial structure was unwound and multiple lawsuits were filed related to the bankruptcy, including one alleging the Ng family, which controls a majority stake of China Fishery, used inflated revenues and fraudulent transactions to acquire Copeinca.
In March, that lawsuit was resolved via settlement, and another major breakthrough was achieved when a group of China Fishery’s lenders – calling themselves the ad hoc creditor group – introduced a debt-for-equity restructuring proposal that would result in them taking over control of CFG Peru. In a court-approved agreement, Brandt was give until 1 June to sell the company, but Brandt told SeafoodSource interest dried up in April and May after the political situation changed in Peru. On 11 April, left-wing candidate Pedro Castillo and right-wing candidate Keiko Fujimori advanced to the final round of voting, which, will take place 6 June, and neither candidate is looked on favorably by the international business community, Brandt said.
“One of the candidates has publicly announced the oceans belong to the people and that he is thinking of nationalizing the country’s extraction industries. The other candidate has not been very strong in support of the fishing industry. If you’re thinking of throwing a billion dollars into the industry in Peru, the current campaign gives you plenty of pause and second thoughts,” Brandt said. “Just as we finished our negotiations creating a glorious horizon of alternatives, this election threw everything into doubt. As the election came into focus in very late April and into May and some of the positions the candidates were taking became publicized, the amount of ardor in pursuit of these assets dropped off.”
Without a buyer, the creditors’ proposal – led by Burlington Loan Management DAC and Monarch Alternative Capital LP – will advance, with U.S. Bankruptcy Court Judge James Garrity, who is presiding over the Chapter 11 proceedings, set to review and approve an amended settlement agreement filed 3 June, Brandt confirmed.
The 200-page agreement involves a USD 25 million (EUR 20.7 million) payment to the Ng family in exchange for agreeing to the netting, or bundling, of all intercompany claims owed by the CFG Peru subsidiaries into one main claim, and for the family’s full support of the agreement. The restructuring support agreement would also convert USD 700 million (EUR 581.4 million) of existing debt into new equity and USD 150 million (EUR 124.6 million) in new funding to the company.
Brandt had hoped to use the creditors’ plan as a stalking-horse bid on the Peruvian assets, but said that since that opportunity has passed, he now fully supports the creditors’ takeover plan.
“I worked with creditors to foster their offer so it would work as a stalking horse and that other bidders could simply bid up the creditors plan. But without that, I’m happy to heartily endorse the creditor plan,” he said. “Effectively, they’ll be paying themselves in full, as they will take the business, operate it for a number of years, and then have an exit strategy, I assume, as they’re all smart people in the private equity business. By that time, all the baggage of the bankruptcy will be well in the past and this will be just another fishing company making a fair amount of money – assuming the politics in Peru don’t get in their way.”
SeafoodSource’s attempts to reach Monarch Alternative Capital Co-Porfolio Manager Andrew Herenstein, who has been the firm’s lead negotiator in the deal, for comment were unsuccessful.
If approved by Garrity, the creditors plan is set to go into effect 23 June.
Brandt said he wasn’t disappointed by the outcome, even after five years of work on the sale process.
“It’s just part of my job, which is to preserve and enhance the value of the assets and return as much as possible to the creditors,” he said. “The business is not only surviving but is prospering greatly. On the day I was appointed, these entities were on the verge of insolvency and had no line of credit. They’re now able to operate self-sustainably on their own cash, despite still not having line of credit. We really cleaned up the business and I’m proud we saved 2,500 jobs. Would I have loved to have a USD 1.56 billion [EUR 1.28 million] sale? Sure, it would have been a nice feather in my cap, but my goal was to find a way out for the creditors and we did that.”
Brandt said he holds no ill-will toward the Ng family, who he said “delayed the case time and time again.”
“They’re tough business people, and I’ve said before I think they cut a few corners here and there, which caused a few problems, but I don’t have any personal feeling of animus toward them. They’re not Al Capone and the mafia, which is the story I was getting from people when I walked in the door. Sometimes they’re the gang that can’t shoot straight. What I found out was, like any family-owned business, sometimes they get in their own way and sometimes they’ve been fairly prescient with the moves they made,” Brandt said.
Ultimately, Brandt said he’s just happy to “pass the baton off to fresh legs and a new set of eyes.”
“The people who are taking over are obviously people who have made their investments in this business with eyes wide open. They are pretty savvy investors and they’ll probably do well with it and I wish them well,” he said. “I’m just glad jobs were saved and we did our best to have the business flourish as well as do good by Peru.”
Photo courtesy of Copeinca