Arcapita, one of the most notorious Shariah-Compliant international conglomerates, with a major office in Atlanta, Georgia, is looking for money to it can complete a “Shariah-Compliant” bankruptcy, something that would be the first of its kind in the USA.
Goldman Sachs Group Inc., which is already providing Arcapita $350 million in bankruptcy exit financing, is now seeking to give the Bahrain investment firm a $175 million bankruptcy loan that would pay off existing lender Fortress Investment Group LLC.
In a Monday filing with U.S. Bankruptcy Court in Manhattan, Arcapita said the Goldman loan would pay off the $105 million still owed to Fortress and later convert into the $350 million exit loan that Goldman is already providing.
With Arcapita obliged to pay off the Fortress loan by June 14, the company said it needs the Goldman loan approved at a hearing on June 10, the day before the company plans to ask a judge to confirm its plan to sell off its assets in order to pay back creditors.
“If the Debtors are unable [to] repay the outstanding Fortress Facility obligations on [June 14], Fortress could declare a default and seek to enforce remedies against the collateral securing the Debtors’ obligations,” Arcapita said.
Goldman, earlier this month, beat out Fortress in a war over who would provide the exit financing for Arcapita.
Fortress’s $150 million financing pact, arranged in December for Arcapita, was believed to be the first U.S. bankruptcy loan fully compliant with Islamic Sharia law. In its Monday filing, Arcapita said Goldman has agreed to provide an extra $25 million, bringing the loan up to $175 million.
Like all the loans Arcapita has secured during its bankruptcy, the Goldman financing 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 these “cost-plus financing” murabahas, 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.
The company said the Goldman loan matures July 31, giving it more time to put its plan into motion. Arcapita also said it solicited other offers and received none that were better than the Goldman one.
Last month, Judge Sean H. 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, after Arcapita received the Fortress financing that it thought could help reorganization, 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.