Senior bankruptcy attorney and Partner at Shipkevich Law Firm in New York examines the impending bankruptcy of Global Brokerage Inc, the current status of the bankruptcy case and what it means for shareholders.
Cristina Lipan is a bankruptcy attorney and a Partner at Shipkevich Law Firm in New York, a commercial legal practice that specializes in corporate law for many business sectors, a prominent area being the FX and electronic trading industry.
On November 10, 2017, Global Brokerage, Inc. (NASDAQ:GLBR) and its affiliate Global Brokerage Holdings, LLC, parent company of FXCM1, (together, “Global Brokerage”) announced a Restructuring Support Agreement (“RSA”) with an ad hoc group of holders of more than 68.5% of Global Brokerage’s 2.25% Convertible Notes due 2018 (the “2.25% Noteholders”).
This RSA will be realized through a prepackaged chapter 11 plan of reorganization which is yet to be filed with the U.S. Bankruptcy Court.
Pursuant to its 8-K report filed with the SEC on November 13, 2017, the goal of the RSA and the proposed Plan is to enable Global Brokerage to extend the maturities on its current debt obligations for five years and restructure its current operations to reduce current expenses.
What is the status of the bankruptcy case?
Global Brokerage has not yet filed a bankruptcy case yet, but expects to commence a chapter 11 case on or before December 20, 2017.
Noteholders have agreed to the terms of the anticipated Plan via the RSA and this is intended to be a prepackaged plan. This means that a plan of reorganization will be proposed along with the filing of the case, which shortens the turnaround time for conclusion of this bankruptcy case. We can expect a plan to be confirmed within 2-3 months, and become effective shortly thereafter.
What does this mean for Noteholders?
Although any chapter 11 plan needs to be voted on and approved by a bankruptcy court, the RSA includes a majority of noteholders which have agreed to the Plan. Practically speaking, this means that the RSA term sheet will likely be consummated and all current noteholders will be held to the terms of the RSA and anticipated Plan.
The RSA term sheet and anticipated plan includes the following provision regarding holders of notes:
Current Notes will be exchanged for an equal amount of a new series of senior secured notes (the “New Secured Notes”) due five years from the Company’s emergence from chapter 11 protection. The New Secured Notes will be guaranteed by Global Brokerage Holdings and accrue cash interest at a rate of 7.00% with a payment in kind toggle option.
The indenture governing the New Secured Notes will not include a convertible feature, but will include certain covenants, including covenants which, subject to certain exceptions, limit the ability of the Company and Holdings to incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates and create liens on assets.
The New Secured Notes are not liabilities of Group and only have recourse to the assets of the Company and Holdings.
What does this mean for common stock holders?
The rights of holders of the Company’s common stock will be unimpaired.
What does this mean for holders of other types of claims?
All administrative expense claims, priority tax claims, and priority claims, as well as all undisputed customer, vendor or other trade obligations, of the Company will be paid in full. Since these claims are unimpaired they will be deemed to have accepted the proposed plan.
Reference notes and documentation available on request by emailing email@example.com