First Irish Creditor Scheme – Complex Cross Border Securitisation Restructuring

Weil advised Ambac Assurance UK Limited (“Ambac”) in relation to the restructuring of reinsurance liabilities of Ballantyne Re plc (“Ballantyne”), through an Irish scheme of arrangement (the “Scheme”) paired with U.S. Chapter 15 recognition. The liabilities comprised New York law-governed senior secured notes of approximately U.S.$1.65bn issued by Ballantyne in 2006, some of which were guaranteed under English law guarantees by Ambac and Assured Guaranty (Europe) plc (“Assured”), as well as various junior notes of approximately U.S.$200m also issued by Ballantyne. Ballantyne was an Irish public limited company formed in 2005 as a special purpose vehicle by the Cayman reinsurer Scottish Re (U.S.), Inc. to provide reinsurance in relation to life insurance policies issued in the U.S. The restructuring provided for the solvent liquidation of Ballantyne.

The Scheme proposed to Ballantyne by Ambac (following lengthy negotiations with key stakeholders) was a market first in being the first creditor scheme of arrangement approved by the Irish court. The Scheme was approved in a lengthy and supportive judgment notwithstanding objection from one minority noteholder. The wider restructuring also involved a complex reinsurance transaction and ground breaking funds flow mechanism through DTC.

Irish schemes of arrangement are based on similar legislation to English schemes of arrangement and the Irish court follows English legal precedent. The Weil London team was therefore instrumental in the design and implementation of the Scheme and the broader restructuring.

The restructuring entailed a highly complex collapse of the securitisation structure, involving the effective disposal of Ballantyne’s reinsurance liabilities and realisation of Ballantyne’s remaining collateral for the benefit of senior secured noteholders, together with the commutation of Ambac’s liability in respect of the Ambac-guaranteed notes (Assured’s guarantees were specifically preserved notwithstanding the cancellation of the Assured-guaranteed notes).

The Weil London team, working closely with the Weil NY team, business advisers, FTI Consulting, and co-ordinating advice from Irish local counsel, led on providing strategic and innovative advice to Ambac on the legal issues arising from the complex nature of the restructuring, including:

  1. requiring a lock-up arrangement, with a 1.25% lock-up fee funded by way of a turnover mechanism, to provide assurance of key third party participation in the restructuring;
  2. not including the junior notes as a Scheme class but cancelling the junior notes following the distribution of all collateral to the senior secured noteholders in accordance with the Indenture waterfall;
  3. reimbursing Ambac, via complex turnover provisions under the Scheme, for historic litigation costs relating to the loss in value of collateral incurred by it as directing party and guarantor;
  4. conferring authority on Ballantyne under the Scheme to enter into the Restructuring Agreement to bind all senior secured noteholders to the restructuring;
  5. legally releasing all noteholder claims against Ballantyne, allowing it to be placed into solvent liquidation post-restructuring and its directors to be released;
  6. creating a detailed Holding Period Trust, enabling some of the collateral to be turned over by the recipient noteholders to a trustee, to hold such collateral for certain contingent claims;
  7. implementing an industry first funds flow mechanism, via a complex escrow and ATOP election procedure, allowing differential payments to be made across CUSIPs; and
  8. designing the restructuring such that the trustee was faced with minimal execution risk, avoiding a trustee request for extensive pre-funded indemnification, typical in indenture restructurings.
  9. The Weil London team also worked seamlessly with their New York colleagues in choreographing the U.S. Chapter 15 recognition proceedings to ensure that the Scheme, once sanctioned, was subject to virtually immediate parallel Chapter 15 recognition under the U.S. Bankruptcy Code. This was achieved notwithstanding two parallel objections from a minority noteholder in both proceedings. In full knowledge that they had designed the Scheme to deal with such objection, Weil led on strategies in relation to the opposition, the effect of which helped ensure that the Irish court rejected all grounds put forward by the dissenting noteholder in opposing the Scheme and that the noteholder voluntarily withdrew its complaint shortly after the Chapter 15 recognition order was granted.

Restructuring partner Alexander Wood led the Weil London team, supported by senior associate Alinta Kemeny and associate Amedea Kelly-Taglianini. Restructuring partner Gary Holtzer led the Weil New York team, supported by partners Miranda Schiller and Ariel Kronman, counsel Debora Hoehne and associates Patrick Steel and Cliff Sonkin.