Private equity firms routinely appoint directors to boards of their privately held portfolio companies and other investment vehicles, some of which will eventually face financial distress. Often, a person appointed to a board by a private equity firm has a relationship with the firm (e.g., they work there or are a trusted friend) but limited experience when it comes to what to do under troubled circumstances. Such individuals may worry about their personal liability in such a situation. What should such an individual do?
Despite a modest uptick in recent years, it is still a relatively rare occasion for the Supreme Court of the United States to tackle issues involving bankruptcy. This term, however, the Supreme Court has granted certiorari in two bankruptcy appeals that could have important consequences for the financial community. In FTI Consulting, Inc. v. Merit Management Group, LP, the Court will define the parameters of the safe harbor of Bankruptcy Code section 546(e), which excludes certain financial transactions from the debtor’s avoidance powers. In PEM Entities LLC v. Levin, the Court will also determine whether federal or state law should apply when analyzing whether debt should be recharacterized as equity. Both cases could alter how financial transactions are structured and documented.
These days, the threat of counterparty insolvency looms over the energy sector: whether it is a natural disaster or precipitous decline in the price of oil, perhaps no industry is more susceptible to the financial decline and potential default of contracting parties. Continue Reading Energy disputes: Countering counterparty insolvency
Bond indentures and loan agreements often include make-whole provisions to provide protection to lenders and investors in the event of debt repayment prior to maturity. Make-whole provisions work to compensate the investor/lender for any future interest lost when the issuer/borrower repays the note prior to a specific date.
The make-whole premium is based on a present value calculation that discounts the payments that would have been received had the debt not been repaid, and is intended to make the investor/lender whole for the payments remaining on the bond/note. A recent Third Circuit decision suggests that the way make-whole provisions are drafted in debt instruments can be crucial in determining the applicability and enforceability of make-whole premiums.
The Singapore parliament recently passed a bill bringing in U.S. Chapter 11-inspired changes to its debt-restructuring framework, including provisions allowing (i) courts to approve financing with priority ahead of existing senior secured facilities; (ii) courts to approve a scheme even if there are dissenting creditor classes; and (iii) international assistance proceedings.
These provisions borrow heavily from the existing provisions in the U.S. Bankruptcy Code.
In light of these changes and the impact on future restructurings, we hosted a webinar on the current and coming use of U.S. Chapter 11 and Chapter 15 proceedings in Asian restructurings.
Some of the topics discussed included:
- Why Asian debtors might look to a Chapter 11 solution over other procedures such as Schemes of Arrangements;
- How the equivalent provisions in the U.S. Bankruptcy Code are applied and the key concepts parties will need to be familiar with; and
- The likely need for U.S. counsel to provide expert testimony in Singapore proceedings regarding the application and interpretation of the new U.S.-based provisions.
Chris Donoho, head of the U.S. Business Restructuring and Insolvency (BRI) practice for Hogan Lovells, shares his insights and perspective on global and U.S. restructuring trends.
Addressing licensing agreements in bankruptcy presents unique issues. End-User License Agreements (“EULAs”) are specific software license agreements in which the licensor provides the end-user/licensee—under the guise of a sale—a personal and non-transferable license to use the purchased software. Given the unique nature of a EULA, how is such a license treated in bankruptcy?
Hogan Lovells’ U.S. Business Restructuring and Insolvency Practice head Chris Donoho and partner Ron Silverman, along with Jefferies’ Restructuring and Recapitalization Group co-head Richard Morgner, recently joined Debtwire legal analyst Richard Goldman to discuss current issues concerning cross-border restructurings.
During the discussion, the panel addressed the factors that prompt foreign-based companies to avail themselves of the U.S. Bankruptcy Code in lieu of local insolvency proceedings, the hurdles that such companies must overcome to secure a U.S. court’s administration of their Chapter 11 cases and pitfalls that foreign-based companies may encounter in the U.S.
The panel also reflected on some recent cross-border cases, including Abengoa, Hanjin Shipping, and Baha Mar.
Over the past several years, the international financial community has witnessed a significant increase in cross-border restructurings of Chinese companies. These restructurings have involved large enterprises with billions of dollars of revenues and indebtedness. The increase in cross-border financings, and therefore restructurings, is tied to the huge debts that Chinese companies, banks and municipalities have been accumulating since the financial crisis of 2008-2009. As central banks have held interest rates at record lows and bought up government debt to stabilize the financial system, investors have increasingly turned to corporate debt issued in emerging markets as a source of higher returns. Chinese companies have capitalized on this appetite for foreign investment and have borrowed $377bn from 2010 to 2014, according to the Bank for International Settlements.
A new wave of foreign investment seems just over the horizon. A regulatory shift was promulgated by the People’s Republic of China’s National Development and Reform Commission (NDRC) circular on administration and filing of foreign debt, which came into effect on 14 September 2015. The NDRC rule is just the most recent in a series of changes that China’s regime has gone through over the last two years that facilitate cross-border Chinese financing and investment.
The United States Court of Appeals for the Second Circuit held in Marblegate Asset Mgmt., LLC v. Educ. Mgmt. Fin. Corp., No. 15-2124-CV(L), 2017 WL 164318 (2d Cir. Jan. 17, 2017) that Section 316(b) of the Trust Indenture Act (“TIA”) prohibits only non-consensual amendments to an indenture’s core payment terms, overturning the decision from the United States District Court for the Southern District of New York, which had taken a more expansive view of the TIA in holding that Section 316(b) prohibited impairing the practical ability to collect payment under an indenture.