Genting Hong Kong’s MV Werften subsidiary files bankruptcy in Germany

By Sarah Lizee

Olympia, Wash., Jan. 11 – Genting Hong Kong Ltd. said its indirect wholly owned subsidiary, MV Werften, filed for bankruptcy in German courts on Monday following failed financing negotiations, according to a corporate announcement made Tuesday.

Genting and MV Werften had entered into two backstop facility agreements under which a total of $118 million conditional, committed standby loan facilities were provided by the State of Mecklenburg Vorpommern (State M-V) and the Wirtschaftsstablisierungsfonds (WSF), Germany’s economic stabilization fund.

Genting said the Delta and Omicron Covid variants impacted the recovery of the group’s cruise operations, and to mitigate the risk of breaching the facility’s minimum liquidity covenant, the group proposed to draw down $88 million on the State M-V facility. Genting said it had satisfied all drawdown conditions, including having obtained backstop funding of $30 million from Genting’s controlling shareholder, Golden Hope Ltd.

However, when the draw was requested, State M-V imposed additional pre-conditions to draw under the facility, Genting said.

The company then applied to the District Court of Schwerin to start legal proceedings against State M-V and sought an interim injunction to require State M-V to comply with the terms of the facility, including to satisfy the drawdown.

On Dec. 28, the court ordered State M-V to immediately fund the $88 million in full, but the next day, the court amended the order and limited the enforceable payment amount to $6.3 million, with the balance of the contractual amount to be paid on a later date. The following day, the court set a hearing for Jan. 11 and amended its order again so that no amount is immediately payable.

State M-V then released a press release saying that it would still make the facility available, but only if certain additional pre-conditions were met, including further agreement from the German federal government and Genting with respect to terms of a bridge loan to MV Werften to fund the ongoing costs of the construction of the “Global One” vessel.

Alternative liquidity

Genting was also seeking to access various alternative sources of liquidity under existing contractual commitments, including €108 million under a €1.36 billion multicurrency term loan facilities agreement entered in connection with the construction of the Global One vessel and €30 million under the “silent participation” tranche of a €300 million WSF funding.

However, Euler Hermes, the German government export credit insurance agency involved in the financing of the Global One vessel, refused to confirm the insurance coverage required under the term loan facilities agreement, resulting in the participating banks under the agreement refusing to release the €108 million amount.

On Dec. 21, the WSF and the German Federal Ministry of Economics, which controls Euler Hermes, sought to replace the existing Global One financing structure with a new financing proposal, with new conditions to fund disbursements. These additional conditions include that participating banks will subordinate their existing security under the facility in favor of the WSF, and the controlling shareholder of the company will provide additional new funding of €60 million to MV Werften as well as a new additional €600 million guarantee of the group’s debt under the new financing.

Genting said it has no ability to compel the participating banks or its shareholders to provide the additional financial assistance.

In addition, on Jan. 5, the WSF said it will not disburse the €30 million under the “silent participation” tranche of the WSF funding.

Genting said it had also applied to the participating banks for the release of $81 million of its own funds currently held in a liquidity reserve account under the term loan agreement. But, as of Tuesday, the banks had not approved the disbursement.

Cross defaults

MV Werften’s insolvency filing has caused an event of default under Genting’s multicurrency term loan facility agreement, which will in turn trigger cross default events under other facilities of the group that have a total principal amount of roughly $2.78 billion.

Creditors under these cross-defaulted financing arrangements may have the right to demand payment of the debt or take other action, Genting said.

Genting said the events have created an “immediate and significant gap” in the expected liquidity resources of the group.

The company is continuing to engage with senior government ministers of the German federal government and its controlling shareholder to increase funding to the group to $42 million from $30 million.

“The company considers that it has exhausted all reasonable efforts to negotiate with the relevant counterparties under its financing arrangements,” Genting said in the announcement.

“If the group remains unable to meet its obligations to repay any debts as they fall due or to agree with its relevant creditors on the renewal or extension of its borrowings or any related alternative arrangements, there may be a material adverse effect on the group’s business, prospects, financial condition and operating results.”

The company’s board is currently in discussion with its bankers, its shareholder partner in Dream Cruises Holding Ltd., an indirect non-wholly owned subsidiary of the company, and its professional advisers to evaluate options available to the group.

Trading suspension

Trading in share of Genting on the Hong Kong Stock Exchange have been suspended since Friday, pending the outcome of the legal proceedings.

Genting is a Hong Kong-based investment holding company that focuses on the hospitality and cruise ship industries.

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