Thursday, May 16, 2013

(This story was originally published Wednesday.) 


   By Joseph Checkler

NEW YORK--Goldman Sachs Group Inc. (GS) beat out Fortress Investment Group LLC (FIG) for the right to lend Arcapita Bank up to $350 million that would ease the Bahraini investment firm out of Chapter 11 bankruptcy.

Judge Sean H. Lane of U.S. Bankruptcy Court in Manhattan earlier in the day directed Goldman and Fortress to scrounge up their best and final exit-financing offers for Arcapita, which had signed a deal to borrow the money from Goldman but faced a challenge from Fortress.

The two parties handed in their final offers at what the judge joked was a "ceremonial handing of the documents," adding before he received them, "Everyone will keep them down at the moment," as if it were a card game. An Arcapita lawyer later declared Goldman the winner. The loan is fully compliant with Islamic Sharia law, which typically prevents borrowing money with interest.

Judge Lane called the bidding "a spirited process."

Arcapita had declared the Goldman loan the better offer last week, but Fortress had argued it had a better financing option available. In court Wednesday, a Goldman lawyer argued that Fortress had missed the deadline to submit its offer, but an impromptu auction still occurred.

A Fortress lawyer asked for a better explanation of the terms of the Goldman loan, which Arcapita lawyers provided. Those numbers included improved prepayment fees and profit rates for Arcapita, which said the Goldman loan would save it $40 million in liquidity. Some of the fees related to the loan were filed confidentially with the court. Goldman subsidiary Goldman Sachs International will arrange and syndicate the loan.

Arcapita plans to use the money to pay off its existing bankruptcy financing to Fortress, which comes due June 14, and fund its plan to pay its creditors and exit the Chapter 11 proceeding it launched last year.

Fortress in December had already provided a $150 million financing pact for Arcapita, a deal believed to be the first U.S. bankruptcy loan fully compliant with Islamic Sharia law.

Like that loan, the new one is a Sharia-compliant "murabaha," a common Islamic financing structure where a lender sells commodities to a borrower, who then sells the commodities to a third party.

Under this type of "cost-plus financing" arrangement, Arcapita buys commodities from Goldman at a marked-up price to ensure the seller profits on the deal.

Arcapita then sells those commodities, providing the bank with an immediate cash infusion. To comply with murabaha financing, Arcapita pays Goldman for the commodities on deferred terms.

Last month, Judge Lane said creditors can vote on Arcapita's proposal to wind itself down and sell off its assets, a plan that has support among many of the creditors the Bahraini investment bank plans to pay back.

The judge plans to consider whether to confirm that proposal at a June 11 hearing.

Arcapita filed for Chapter 11 in March 2012 with plans to reorganize as a leaner company. It manages real estate, infrastructure, private equity and venture capital investments that are compliant with Sharia law.

Late last year, Arcapita received the Fortress financing that it thought could help it reorganize, but instead the company ended up going to its backup plan, a liquidation of its assets. It has already sold off some of its business, including five U.K. assisted living facilities, to generate cash.

-Jacqueline Palank contributed to this article.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at joseph.checkler@dowjones.com. Follow him on Twitter at @JoeCheckler

(END) Dow Jones Newswires

16-05-13 0345GMT