Arcapita Plan May Lead to Investments’ Sale, Lenders Says

Arcapita Bank BSC, an Islamic-compliant fund manager, shouldn’t be allowed to extend control of its bankruptcy because it already has a plan that may lead to the sale of investments with a liquidation value of $1.4 billion, lenders said.

A group of lenders owning $1.1 billion of Arcapita’s unsecured debt objected in court papers to the company’s bid to extend by 120 days its exclusive right to file a bankruptcy exit plan. The company has a “toggle” plan under which it will either reorganize or “conduct an orderly monetization” of assets, depending on whether Arcapita raises more money by the time it seeks to confirm a plan in 2013, the lenders said.

Arcapita officials “should not be given four months to see if they can raise new money -- they should file their ‘toggle plan’ promptly and be put on a very short leash so funds are not imprudently invested and creditor recoveries are not diminished,” lawyers for the group wrote in an Oct. 2 filing in U.S. Bankruptcy Court in Manhattan.

The company’s case isn’t more difficult just because there are issues with investments that are compliant with Shariah, or Islamic law, lenders said.

Arcapita, which filed for Chapter 11 protection March 19, has asked to have until Dec. 14 to file a plan and until Feb.12 to win creditors’ support. Valuation reports by KPMG indicate that assets under management have a liquidation value of $1.4 billion, lenders said.

Arcapita, based in Manama, Bahrain, listed assets of $3.06 billion and liabilities of $2.55 billion in its Chapter 11 petition. Arcapita Investment Holdings Ltd., already in U.S. bankruptcy, also has filed a bankruptcy in the Cayman Islands.

The company’s investments include Irish power utility Viridian Group Ltd. and U.S.-based Falcon Gas Storage Co.

The case is Arcapita Bank BSC, 12-11076, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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