Azerbaijani Bank Wins U.S. Bankruptcy Court Recognition

By Tom Corrigan Features Dow Jones Newswires

A New York bankruptcy judge agreed to help the International Bank of Azerbaijan, the country's largest lender, fend off creditors while it works to restructure more than $3 billion in debt.

Continue Reading Below

In a decision handed down Wednesday at the U.S. Bankruptcy Court in New York, Judge James Garrity Jr. approved the bank's chapter 15 petition, overruling an objection from a group of bondholders unhappy with their treatment under the bank's proposed debt-cutting plan.

Battered by a decline in oil prices and currency fluctuations, the bank says it has taken substantial losses in recent years, despite several capital infusions. A formal restructuring process began in Azerbaijan in April, court paper show.

The bank, which is owned by the Azerbaijani government, sought chapter 15 protection last month to help it restructure $3.3 billion in bad loans. With a judge's approval, chapter 15 provides foreign companies with the full benefits of U.S. bankruptcy law, including those that halt lawsuits and block creditors from seizing assets.

A group of the Azerbaijani bank's international creditors, namely U.S. and European investors facing big losses on bondholdings, had complained that the plan was fundamentally unfair and designed to shortchange them.

Bondholders say a voting process has been skewed to benefit the bank's owners, noting that if they vote against the plan or abstain from voting, their ultimate recovery will be substantially less than if they vote to support it.

Continue Reading Below

"The whole process has been allowed to preference local creditors," Fredric Sosnick, a lawyer for the bondholders, said during a court hearing last week.

But to halt recognition, the bondholders had to clear a high legal bar, showing that chapter 15 recognition would be "manifestly contrary to the public policy of the United States."

In his ruling Wednesday, Judge Garrity said issues raised by the bondholders "did not rise to the level of violating fundamental U.S. principles."

Court papers show the objecting bondholders, owed $220 million, include funds and accounts managed by Fidelity Management & Research Co., Franklin Templeton Investment Management Ltd., Promeritum Investment Management LLP and VR Global Partners LP.

The International Bank of Azerbaijan has over 750,000 customers in Azerbaijan and abroad and says it provides a critical economic link between Azerbaijan and the rest of the world.

Thomas MacWright, a lawyer for the bank, told Judge Garrity that U.S. recognition of its restructuring process was "critical to that country's banking sector and economy."

Mr. MacWright also pointed to the fact that the objecting bondholder group holds less the 10% of the bank's overall debt. And he said that Cargill Financial Services International Inc., the bank's largest creditor owed $715 million, supports its chapter 15 petition.

With chapter 15 approved and with similar protections granted in the U.K., a court in Azerbaijan is next slated to hold a hearing on the bank's restructuring plan. Once the plan is approved in its home country, the bank will have to return to Judge Garrity to seek enforcement of its terms in the U.S.

Azerbaijan is a small oil-rich country on the Caspian Sea, nestled between Russia and Iran. The International Bank of Azerbaijan is based in Baku, Azerbaijan's capital, and has subsidiaries in Russia and Georgia, court papers show.

Write to Tom Corrigan at tom.corrigan@wsj.com

(END) Dow Jones Newswires

June 28, 2017 17:08 ET (21:08 GMT)