Taking the lead in multijurisdictional cases

They would not be forcing the airline into bankruptcy – I knew that much

Richard Sjøqvist

Taking the lead in multijurisdictional cases

- At BAHR, we are not only seeking to recruit clever talent. We want lawyers who have the courage of their convictions and are ready to stand up, says Richard Sjøqvist, partner and Head of our Finance group. This was precisely the type of lawyers and advisors that Norwegian Air Shuttle was looking for when they called Sjøqvist in 2019, and embarked on a restructuring process that was not completed until the spring of 2021.

In the autumn of 2019, the airline Norwegian had NOK 145 billion in existing and future debts and would shortly thereafter find itself in the midst of a global pandemic that ravaged international aviation. The subsequent restructuring would turn out to make legal history. Absolutely unique in a European context, and a masterclass in preserving value and jobs in companies that find themselves in financial distress.

- Our first action when instructed to act in a matter like this is to clearly establish the facts and analyse the interests involved. What are the facts on the ground? What leverage does our client have, and what leverage do the creditors have? Where do their interests overlap and what are the points of contention? We identified such potential leverage in the form of the Gatwick landing slots when we conducted our review of the airline Norwegian. These represented a value that was not reflected on the balance sheet and that had also not been adequately communicated to the creditors. We were in a position to adopt a negotiation strategy based on something substantive. Something that we could bring to the table, says Sjøqvist.

In negotiations, Sjøqvist takes inspiration from Nobel laureates John Nash and Thomas C. Schelling: How to arrive at the optimal joint solution, when no one has all the facts?

- We knew that the bondholders wanted something better than what they had; a high risk of default, but we did not know what that might be in practice. We approached the bondholders. We showed them the value potential of the landing slots, which would be forfeited in a bankruptcy.

much. A living airline is worth a great deal more than a mothballed operation. Once the landing slots came into play, we were able to tell the bondholders that valuable assets were available, provided that the airline survived. We have something you can ask for, although it may be difficult to give. Maybe not perfect, but enough to pique their interest. The more we held back, the more they wanted it. It is, however, challenging to create a bondholder consensus. Bondholders are typically a heterogeneous group with many different value drivers. The key focus in such a process must be on building the consensus on shared interests.

The situation deteriorates

- We had to take a lead on legal strategy in the Norwegian case. We needed to define what fronts we wanted, with whom we should be allied, and when, as well as what tools would get us across the line. It is our ability to identify and apply the legal tools that makes clients approach us, but it is the practical negotiations that determine whether we nail down a deal.

In the winter of 2020, when the pandemic had reached Norway, we completed, with Norwegian and other external advisors, a major, but voluntary, debt restructuring in the hope that the pandemic would be over by the summer of 2020.

Equity was boosted by more than NOK 15.3 billion, but that was not enough. The pandemic persisted, vaccine timelines were extended, and it became evident that the airline needed additional capital. Norwegian Air Shuttle wanted to find a solution that involved support from the Norwegian State, in parallel with what Scandinavian Airlines, Air France, KLM and Lufthansa had been granted. However, the State said no.

- We entered a new stage when the rejection was received on 9 November 2020. One cannot operate for the account of the creditors without a plan that offers a reasonable prospect of success. We needed to come up with a new debt restructuring that would get thumbs up from creditors representing more than 50 percent of the outstanding debt. We had to hatch a plan that would ensure majority support for restructuring. This was no minor challenge when faced with more than 44,000 creditors, and would have been virtually impossible if one had relied on Norwegian Restructuring Act alone.

An inspiring solution

The solution was to be found in Ireland, where a major part of the European aviation industry has a presence. In Ireland, we were able to organise the creditors into a total of 17 classes. If one class is exposed to loss, but votes in favour of the proposal, this will be binding on all the other classes. The group that leased the aircraft currently used by Norwegian favoured the proposal.

- Norwegian petitioned for examinership for its parent company in Ireland and this was

Norwegian’s then CFO, and now CEO, Geir Karlsen, at the event marking the airline’s exit from bankruptcy protection on 26 May 2021. Photo: Stian Lysberg Solum/NTB

granted. The next day we applied for restructuring in Norway as well. This meant that we were running parallel processes. A majority in Ireland also meant a majority in Norway, since the creditors that were bound by the Irish plan represented more than 50 percent of the capital necessary under the Norwegian plan. This had not been done before. Against this backdrop, we developed the plans that led to a hybrid capital solution. This instrument enabled creditors to support Norwegian with NOK 1, and thereby get back NOK 2 of the old loans. A bond that represents 200 percent of the invested amount in an old claim. It was quite a clever solution. It stirred the interest of the Norwegian State, which agreed to have another look at funding. The airline Norwegian decided at the same time to close down its longhaul routes, which further induced the Norwegian State to lend the airline NOK 1.5 billion with generous compensation. This solution also attracted other investors, which came to see that it was not only possible to reduce debt, but also to attract new capital. The solution we found has attracted attention, and has been a source of inspiration for many involved in corresponding matters internationally, says Sjøqvist. It did in many ways serve as a catalyst for all the other elements that eventually fell into place.

- The Norwegian Air Shuttle case extended over several years and is an example of Norwegian law firms taking a lead on strategy, negotiations and implementation in such situations. We organised the process in 17 jurisdictions, a role often taken by major US or UK firms. Norwegian law firms are second to none, and can easily hold their own against US and UK law firms. Norwegian lawyers have a lot to bring to an international setting, and in a Norwegian social context, as illustrated by the Norwegian Air Shuttle case, he concludes.