Global cruise ship giant Genting Hong Kong has warned that insolvency proceedings filed by its shipbuilding subsidiary are likely to trigger default events on around US$2.78 billion in debt under a series of agreements it recently signed with lenders.
According to information filed by Genting Hong Kong with the Hong Kong Stock Exchange on Tuesday, MV Werften Holdings Ltd (MVWH) filed for insolvency on 10 January 2022 after its attempts to draw down US$88 million under a backstop facility provided by the State of Mecklenburg Vorpommern in mid-December were halted.
Court proceedings scheduled for Tuesday 11 January (German time) will now decide whether or not the company is granted access to the funding, however failure to do so would appear to spell disaster for Genting Hong Kong just months after completing comprehensive refinancing agreements with multiple lenders.
“The MVWH Insolvency Filing made by MVWH gives rise to an event of default under the Global 1 Facility Agreement, and this will in turn trigger cross default events under certain financing arrangements of the Group that have an aggregate principal amount of approximately US$2,777,000,000,” the company said in Tuesday’s stock exchange filing.
“The relevant creditors of the Group under these cross defaulted financing arrangements may have the right to demand payment of the indebtedness and/or take action pursuant to the terms of their respective financing arrangements.”
Nevertheless, Genting Hong Kong said it was required under German law to file for insolvency due to the lack of any prospect of additional funding being available to MVWH in the meantime.
The company also revealed it was the German government’s export credit insurance agency, Euler Hermes, that had blocked the release of the US$88 million by refusing to confirm insurance coverage.
This refusal, Genting Hong Kong said, was based on a business review conducted by Euler Hermes into the five-year outlook of the company which considered various stress scenarios, including “a persistent and sustained reduction in business activities as a result of COVID-19.”
However, Genting Hong Kong stated its view on Tuesday that “such a business review is not a pre-condition to Euler Hermes confirming insurance coverage” and that it “does not consider the assumptions used in the business review as fair and reasonable”. It also noted that Euler Hermes relied on those findings to deny insurance coverage despite Genting Hong Kong having already paid the insurance premium demanded by Euler Hermes in connection with such coverage.
The company argues that it is contractually entitled to drawdown the funding as per previous agreements but that it has no ability to compel the participating banks to provide assistance.
“The relevant counterparties’ failure to perform their binding contractual obligations have created an immediate and significant gap in the expected liquidity resources of the Group,” it said.
“Subject to the outcome of the hearing of the Company’s application on 11 January 2022 … there is no guarantee that the Group will be able to meet its financial obligations under its financing arrangements as and when they fall due.”
