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Arcapita files for bankruptcy

The Bahrain-based private equity group has filed for bankruptcy protection in the US after failing to agree a $1.1bn debt refinancing with creditors.

Bahrain investment house Arcapita Bank and several of its affiliates have filed for Chapter 11 bankruptcy protection in the US, “with the goal of developing and confirming a plan of reorganisation”, the firm said in a statement.

Chief executive Atif Abdulmalik blamed “certain non-bank creditors” for Arcapita’s failure to complete the refinancing of a $1.1 billion debt facility coming due on March 28.

The filing, which is allowed as many of Arcapita’s portfolio companies are based in the US, imposes a worldwide injunction against collection and enforcement actions that will protect the firm’s assets while a reorganisation plan is formulated.

None of Arcapita’s operating subsidiaries or portfolio companies have filed, the firm said. The firm’s private equity investments include Varel International, which makes oil and gas industry-related equipment, and US women’s clothing retailer J Jill, which it bought in April last year.

Arcapita began the refinancing of the $1.1 billion facility 18 months ago, but these plans were “negatively impacted by the eurozone crisis”, said Abdulmalik. Several weeks ago the firm entered discussions with some 50 creditors to extend the facility by three years.

The firm said it had sufficient liquidity to manage its portfolio businesses, that no immediate asset sales were planned and would only be considered at “the appropriate point in the investment cycle”.

“This was a difficult decision. But after lengthy review of all the alternatives open to us, there is no question that this is the right course of action, which we are taking with the support of the board,” said Abdulmalik.

“After reviewing all the available options with management and its financial and legal advisors, the board has agreed that a filing for protection under Chapter 11 is not only a necessary step, but the best course of action, to safeguard the interests of the bank’s stakeholders. It will allow Arcapita to restructure its balance sheet and reorganise its business to maximise recoveries for all creditors and other constituencies,” Mohammed Abdulaziz Aljomaih, chairman of Arcapita’s board of directors, said in a statement.

In April last year, Arcapita sold Indian retail pharmacy chain MedPlus Health Services to a consortium of private equity investors, generating a 1.7x cash-on-cash return.

Arcapita’s legal advisors are Gibson Dunn & Crutcher and Linklaters, and its financial advisor is Rothschild.