Global law firm White & Case LLP successfully represented Anchorage Capital in getting a chapter 11 plan approved for the liquidation of Zais Investment Grade Limited VII, a Cayman Islands-based distressed CDO.
The Zais case is novel and cutting edge in many respects. "The Zais case is the first-ever involuntary prepackaged case brought under the US bankruptcy code," said Gerard Uzzi, a partner in White & Case's Global Financial Restructuring and Insolvency Practice who represented Anchorage. "It is also the first and only use of chapter 11 to unwind a CDO. The Zais case proved that distressed CDOs, previously thought by some to be immune to bankruptcy, can in fact be successfully reorganized in bankruptcy. We were pleased that we had the opportunity to work with Anchorage Capital on this groundbreaking case."
Prior to the filing of involuntary petitions placing Zais in bankruptcy proceedings, three Anchorage entities solicited acceptance of their plan of reorganization for Zais using two provisions of the bankruptcy code previously thought mutually independent. "Prior to Zais, most people had not even considered the possibility of linking the provisions of the code allowing for involuntary petitions with those allowing for prepackaged plans in a single one-step process," said Uzzi. The US Bankruptcy Court for the District of New Jersey granted an order for relief against Zais and terminated its exclusive right to file a plan, paving the way for confirmation of the prepackaged Anchorage plan by US Bankruptcy Judge Raymond T. Lyons, Jr. That plan went effective on January 6, 2012.
Anchorage and White & Case's first-of-its-kind approach of forcing a distressed CDO into an involuntary bankruptcy and using chapter 11 to unwind it resulted in substantial economic benefit for senior noteholders. "Value was indisputably created here," said David Thatch, a partner in White & Case's Global Capital Markets Practice who focuses on securitization and structured finance and who also advised Anchorage. "Stakeholders, and senior noteholders in particular, will now receive materially higher cash recoveries through an actively managed liquidation by Anchorage, as the post-petition investment manager, than if the CDO were to continue in default outside of bankruptcy."
Anchorage, a New York-based registered investment adviser, manages private investment funds across the credit, special situations and illiquid investment markets of North America and Europe, with particular focus on defaulted and leveraged issuers.
In addition to Gerard Uzzi and David Thatch, the White & Case team advising Anchorage comprised New York partners J. Christopher Shore and Dwight Healy and associates Thomas MacWright, Jessica Weitman, Rebecca Bodony, Patrick Boyle and Jim Fogarty.
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