Vol 13 (2016) - Issue 1

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TORM A/S – A Complex Danish Restructuring and Merger Tied Together by an English Scheme of Arrangement

The recent restructuring of Danish tanker operator TORM A/S ('TORM') provides an instructive case study on the use of an English law scheme of arrangement to implement a complex multi-jurisdictional restructuring and merger. The TORM restructuring was noteworthy for a number of reasons. First, it utilised an innovative structure to accommodate the commercial interests of different creditor constituencies within the same class of debt. This debt restructuring was then combined with a merger transaction with the valuation automatically adjusted to account for the level of debt equitised. The transaction was implemented through the use of a novel combination of an English law scheme of arrangement and Danish corporate law. This was a first for a listed Danish company and involved the change of governing law of certain debt facilities, and was completed with the relevant Danish shareholder approvals and without the need for local bankruptcy proceedings.
This article describes the background to the restructuring, the way the deal came together, and the processes used to implement it.

Background to TORM
TORM, headquartered in Copenhagen, Denmark, is one of the world’s leading owners and operators of tankers for the transport of refined oil products. TORM is a Danish limited liability company whose shares are listed on the NASDAQ OMX Copenhagen. TORM’s global operations consist of commercial and technical vessel management, and the group has operations in Denmark, Singapore, the USA, the Philippines and India.
TORM had previously been through a first round restructuring in 2012. As a consequence of the global economic downturn, from 2009 onwards charter rates for tankers and dry bulk vessels collapsed, which led to a pronounced reduction in vessel values throughout the industry. This collapse resulted in TORM’s loan facilities, which comprised seven separate syndicated loan facilities, with 'siloed' security pools, becoming significantly under-collateralised. Along with many operators, TORM also faced significantly reduced cashflow as a result of the reduction in charter rates. For TORM, this produced significant potential unsecured liabilities in respect of its long-term chartered vessels, many of which had become loss making.
In November 2012 TORM completed a consensual out-of-court restructuring of its loan facilities and charter obligations. Through the 2012 restructuring TORM equitised its charter liabilities and gained a new working capital facility and a payment holiday and other changes to its loan facilities. There was not, however, any reduction in the principal amount of the debt.
TORM’s new working capital was provided through a new super senior working capital facility with a maturity date two years after the close of the restructuring (the 'Super Senior Facility').
In addition, for three of TORM’s facilities an opt-out was provided, which allowed those lenders within the two years following the restructuring to require TORM to sell the vessels funded by those facilities. As a result of the exercise of these options, the vessels were sold to Oaktree Capital Management ('Oaktree'), with the majority of the vessels remaining under TORM management. Oaktree subsequently acquired further vessels, to create a fleet of 25 vessels, with six newbuilds on order.

Financial situation of the group before the restructuring
Following the 2012 restructuring, TORM was the borrower under four loan facilities with separate collateral pools but which were governed by an overarching Framework Agreement, as well as its Super Senior Facility. The Super Senior Facility and two of the loan facilities were governed by English law, with the remaining two loan facilities governed by Danish law.