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Deals of the Year 2022: NAS examinership highlighted effectiveness of Irish Courts in complex cross-border restructurings    
Having grown rapidly to become Europe's third-largest low-cost airline and the biggest foreign carrier serving New York, the pandemic hit Norwegian Air Shuttle hard. This followed significant financial difficulties in the years leading up the pandemic. It sought the protection of the Irish High Court by way of Examinership to allow it time to complete a debt restructuring. The successful process had a number of novel features. As there had been only two examinerships of airlines in the Irish High Court before Norwegian, the case was watched closely by the aviation community around the world. It delivered strong evidence of the Irish judiciary's expertise and willingness to endorse the use of both examinerships and schemes of arrangement to deliver complex cross-border restructurings within tight timeframes.
Following an initial restructuring in April 2020, made with the support of the Norwegian government, NAS successfully converted approximately NOK12.7 billion (c.€1.2b) of debt to equity through agreement with certain creditors and raised approximately NOK 400 million (c.€37m) in new cash and equity through a public offering. But with the pandemic forcing it to ground all but six of its fleet of close to 150 aircraft, and with no end to that in sight, and with debts and liabilities of NOK 66.8 billion ($7.64 billion) by the end of September 2020 the airline was increasingly concerned that it would run out of cash by the following February.
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Then, in November 2020, after the Norwegian government announced that it would not be providing any further financial support to the group, NAS sought the protection of the Irish courts to allow it time to complete a debt restructuring. NAS and five affiliated companies were placed in Examinership by the High Court of Ireland. The challenge was to convince its creditors and owners of its future potential, and to persuade them that, with the help of the courts, it could emerge as a smaller but more efficient carrier, with fewer aircraft, less debt and more equity.
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L-R] Kevin Gahan, partner, Matheson; Stephen Gardiner, partner, Matheson and Kevin Mahony, senior associate, Matheson.

The rescue plan proposed by the Examiner, Kieran Wallace of KPMG, included the conversion of debt into equity and the raising of up to NOK 4 billion from the sale of new shares or hybrid instruments. The Examiner’s scheme became effective on 26 May 2021, following confirmation that the business has successfully raised NOK 6 billion, and reduced its total debt from approximately NOK 63 - 65 billion at the end of 2019 to approximately NOK 16 - 18 billion by May 2021.
As a consequence of the Irish examinership process, the resulting ‘New Norwegian’ was able to undertake a comprehensive restructuring of its operations. While it discontinued its long haul flight operations, it retained its airlines in Norway and Ireland and their associated licences and pivoted to a short-haul network primarily operating in Norway and the Nordics or from there to Continental Europe.

It cut its fleet by two thirds, to 51 aircraft, all of which are now Boeing 787-800 narrowbody jets, and it secured more favourable leasing arrangements on its retained fleet, including ‘power by the hour’ agreements which ran until March 2022. As part of the agreed recovery programme, it also terminated its aircraft purchase orders, representing CAPEX commitments of approximately NOK 85 billion in aggregated value.

The court permitted Norwegian Air Shuttle ASA (a Norwegian company) to avail of the examinership protection as a related company, the first material non-Irish company to do so, and the court also acceded to the companies' request to repudiate a wide range of contracts that included operational contracts, lease agreements and, for the first time, guarantees.

In respect of the Cape Town Convention, the court approved the repudiation of the relevant lease agreements relying on the judgement of the Federal Court of Australia in VB Leaseco, which determined that the obligation to 'give possession' thereunder did not include an obligation to effect redelivery of an aircraft in accordance with the terms of the lease as if the lease had ended. The court further ordered that it would not be appropriate as a condition to approving the repudiation of the leases to compel a company to discharge claims of third party lienholders for the benefit of a creditor and in priority to all other claims against that company, such losses should constitute an unsecured claim for damages for breach of contract.

It was also significant that, due to a lack of local law recognition of foreign insolvency processes, the examinership had to work as the lead process closely with a Norwegian Reconstruction process. The Irish examinership, therefore, was the lead restructuring process for NAS supplemented in Norway by a process that replicated and implemented in full the terms of the Examiner's scheme. The recovery plan had to be crafted to ensure it was consistent with both Irish and Norwegian law.
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McCann FitzGerald partner David O'Dea.

One novel element of the NAS scheme was that it authorised the Examiner to vote on behalf of all creditors of NAS in favour of the Norwegian Plan (even those who voted against the Irish scheme), leading to the approval of the Norwegian reconstruction. The schemes and the Norwegian Plan were ultimately subject to recognition under Chapter 15 of the US Bankruptcy Code.

Because the nature of the investment required was such that it could not be sourced from a single investor or group of investors and rather had to be sourced from the public markets, existing shareholders and creditors and other investors, it was not possible to secure an unconditional investment before the restructuring was approved by the Irish court.

Consequently – in a significant departure from well established practice – the schemes were presented and ultimately approved on the basis that the debt write downs under the schemes would not become effective ‘unless and until’ the minimum target amount (NOK 4.5billion/€433.6million) was raised on an unconditional basis.

In another novel approach, the NAS scheme was crafted to provide a ‘blended dividend’ to unsecured creditors representing 5 per cent of their claim comprising a proportionate share in a NOK 500m cash pot coupled with convertible Norwegian law debt instruments. This combination and the nature of the instruments were novel in an Irish restructuring context where typically creditors receive a fixed cash dividend.

Advisers on the Examinership included: Matheson (lead Irish counsel to Norwegian); Hogan Lovells (UK and US counsel for Norwegian Air); BAHR (Norwegian Counsel for Norwegian Air); William Fry advised Kieran Wallace, KPMG as Examiner. Various creditors were advised by: A&L Goodbody; McCann FitzGerald, Walkers, Dillon Eustace, Arthur Cox, Maples, and DLA Piper. Dentons advised Airbus, Walkers advised Boeing. Other advisers on the deal included: Arntzen de Besche Advokatfirma AS; Bjerke Lowzow von Ahnen Advokatfirma AS; Clifford Chance LLP; Smith, Gambrell & Russell LLP; Seabury Securities.

Ruairi Rynn, partner, William Fry, commented: ‘The examinership schemes were some of the most complex and innovative examinership schemes deployed and ultimately approved by the Irish courts since the introduction of the examinership process in 1990 and were subject to implementation in Norway through a parallel Norwegian law process and recognition in the US.’
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Walkers Partner William Greensmyth.

Stuart Kennedy, partner, Matheson said: ‘A number of interesting observations can be made from the decision of the Irish High Court’. He noted that it had been held that the Irish High Court had jurisdiction to appoint an examiner to Norwegian, on a related company basis, being a non-Irish debtor which did not have its centre of main interests in Ireland (or any other member state of the European Union to which the EU Insolvency Regulation applies), but which did have a ‘sufficient connection’ to Ireland on the basis that ‘the commercial operations of the Group taken together with the range of legal transactions entered into by both NAS and its subsidiaries are so closely linked and interdependent that NAS has a real and deep connection to the State’.

David Baxter, partner, A&L Goodbody said: ‘ALG was delighted to act across multiple mandates for a range of lessors and financial creditors in this complex, cross-border transaction where the Irish Examinership process was the primary court procedure used to implement the restructuring.’

McCann FitzGerald negotiated, advised and represented a number of clients through all aspects of the restructuring process. These included lessors AerCap, BOC Aviation, ELFC, FPG Amentum, SMBC Aviation Capital, M&T Aviation Finance (Ireland) and Goshawk, as well as the US Export-Import Bank.

David O’Dea, Partner, McCann FitzGerald, said: ‘This was by far the largest airline examinership to have come before the Irish courts and there were a number of unique aspects to the Examinership’. He noted, for example, that while a significant number of the aircraft leasing and sub-leasing arrangements are governed by English law, the Court was satisfied that the Irish repudiation orders and the Examiner’s proposals would be recognized in England under section 426 of the UK Insolvency Act 1986, notwithstanding the English Rule in Gibbs.

He also noted that although the shares in the Examinership were significantly diluted, the NAS shareholders still retained a 4.6 per cent shareholding, notwithstanding the significant impairment of creditor claims. ‘Given the nature of the investment required, it was determined that it was essential to retain liquidity and value in the NAS shares, which was the rationale for not cancelling the existing shareholders’ equity in NAS,’ he observed.

Walkers partner William Greensmyth, commented: ‘For us, the ability of our restructuring team and aviation finance team to work in a seamless manner and provide time critical advices to our client across a wide range of issues was key and gave us an opportunity to display the wealth of knowledge within our firm on a highly complex matter.’ He added that the Norwegian Air examinership ‘expands the parameters of how a scheme of arrangement can be formulated to afford an enterprise the best chances of a successful restructuring’.

Robin McDonnell, partner, Maples, said: ‘We provided insolvency and restructuring advice to two aircraft lessors, Avolon and KDAC Aircraft Trading 2 Limited (for which DVB Bank acted as servicer), in the context of the examinership of the Norwegian Air group. During the process, the lessee companies issued court applications seeking the repudiation of aircraft leases and ancillary agreements. The repudiation applications in respect of our clients were ultimately settled.
‘We were pleased to have acted for a number of stakeholders in this complex restructuring,’ commented Jamie Ensor, Partner, Dillon Eustace.
"This deal demonstrated Dentons' ability to seamlessly navigate through complex multi-jurisdictional restructurings," said Gareth Steen, partner, Dentons Ireland LLP.

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