On Monday, Arcapita Bank BSC (“Arcapita”), a Bahraini closed joint stock company, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the Southern District of New York. As stated in the First Day Declaration of Arcapita’s Executive Director (the “Declaration” or “Decl.”), the company describes itself as a “leading global manager of Shari’ah-compliant alternative investments and operates as an investment bank,” instead of a domestic bank licensed in the United States. Decl. at *3. Arcapita is based in Bahrain and operates under a wholesale banking license issued by the Central Bank of Bahrain. Id. This post will look briefly at Arcapita’s business, why the company filed for bankruptcy as well as some of its objectives while in bankruptcy.
Arcapita began its business in 1996. By the time the company filed for bankruptcy, its operations had grown such that it now employs 268 people with offices in Bahrain, Atlanta, London, Hong Kong and Singapore. The company’s core business focuses on investing on its own account, as well as on behalf of third parties, in investments that are compliant with Islamic Shari’ah rules and principles. Decl. at *3. In addition to investing, the company also manages approximately $7 billion in assets under investment. Id. Arcapita lists assets valued at $3.06 billion against liabilities of $2.55 billion. Id.
Events Leading to Bankruptcy
The global recession and the debt crisis in the Eurozone are the two primary factors leading to Arcapita’s bankruptcy filing. Due to the recession, the company has seen its investment assets decline in value. At the same time, the recession has hampered Arcapita’s ability to access much needed capital. Decl. at *8. The company is the borrower under a $1.1 billion Shariah-compliant debt facility that matures on March 28, 2012. Decl. at *6. Due to a lack of liquidity, Arcapita is unable to repay the debt facility when it comes due. Decl. at *8. Arcapita and its lenders have engaged in negotiations in an effort to reach an out of court restructuring of its debt. However, to date the company has been unable to achieve full consent from its lenders which is necessary to restructure. Decl. at *9.
Objectives in Bankruptcy
According to its Declaration, Arcapita filed for bankruptcy in order “to provide a forum for a global restructuring of their liabilities through a confirmed chapter 11 plan of reorganization.” Decl. at *9. Soon after filing for bankruptcy in New York, Arcapita Investment Holdings Limited (“AIHL”), a debtor subsidiary incorporated in the Cayman Islands, sought relief from the Grand Court of the Cayman Islands. Decl. at 1-2. AIHL commenced a proceeding in the Cayman Islands hoping to preclude another party from taking action in the Cayman Islands that might “undermine” “the benefits offered by the United States Bankruptcy Code.” Decl. at *10.
Arcapita is represented by the law firm Gibson, Dunn & Crutcher LLP.