jo rodin nordic capital market forum · bond restructuring from a practitioners perspective jo...

Bond restructuring from a practitioners perspective

Jo RodinNordic Capital Market Forum

22 November 2017

ADVOKATFIRMAET THOMMESSEN AS 1

.

Some "pick up points" – a kind of overall agenda

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• "A practitioners perspective" – interpreting the theme…..

• Bo Becker:

• "Chapter 11 remains gold standard"

• "Bondholders at disadvantage (vis-a-vis banks) in out of court restructuring"

• In court in Norway – is it really not an option?

• The actual process – the road to a deal

• How and when are the bondholders involved – do they get to the table at the right time?

• Banks vs Banks and Banks vs Bonds

• Do we really miss an effective in court system?

• BUT FIRST, A COUPLE OF REMINDERS


Reminder 1: Stakeholders typically affected from a legal perspective

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COMPANY

Banks

Bondholders

Customers

Suppliers

ShareholdersBoard

Leasing partners

Employees

Regulatory

authorities

BANKS

• Early actions in order to preserve the company’s assets

• Review documentation in order to prepare necessary steps

• Mapping out local law issues

BONDHOLDERS

• Difficulty indentifying holders, majority requirements in order to act

• Integration of bank terms and bond terms is often lacking, providing greater

consent rights to the banks

CUSTOMERS• New requirements for security for performance

• Payments withheld as security for potential defects or mis-performance

SUPPLIERS

• Suppliers refuse to deliver unless payment is made on delivery – negative

cash-flow

• Exposed to termination (incl. anticipatory breach)

SHAREHOLDERS

• New equity

• Equal treatment considerations

• Dilution

BOARD

• Safeguarding the common interest of the shareholders and the company

• Shift in focus towards creditors

• Ensure correct factual basis for decision making

EMPLOYEES

• Desired composition of the workforce (redundancies)

• Management flexibility to transfer non-core business employees within the

group or to third parties (transfer of undertaking)

Stakeholders: Key legal aspects:

Reminder 2: Fiduciary duties and other unpleasantriesThe "board squeeze"

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Proper actions (and the wish for/

the sense of restructuring)

Finance creditors

Duty of action asl/asal § 3-5

Duty of care/ liability asl/asal § 17-1

Press/media

Press releases

• Duty to file• Fraudulent

preference

• Employees• Shareholders• BoD

• Preferential treatment

Penal actions asl/asal § 19-2

Penal Code Chapter 27

Other interestsRisk of

Non-statutory liability

In addition: Agreements,

rights and obligations

At all possible to achieve a

restructuring?

Or straight to bankruptcy

– in the best interest of…

the BoD?

Restructuring in court…in Norway?

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In the zone of insolvency

• The Company is on the brink– running out of cash

• The Company/Group must reorganize –some of it can survive, other parts not

• Attempt to achieve an out of court restructuring

• Negotiations not successful

• The best option?

• What are the options – depends on Company, business, composition of creditors etc.

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Alternatives:

Norske "debt settlement":

• High risk of full bankruptcy

• Unflexible

• Not really a restructuring

Norwegian bankruptcy

• Essentially a full liquidation

• Asset transaction is a possibility, but:

• Reputation

• Contracts

• Value

Foreign alternatives:

• US Chapter 11

• Schemes (UK, Singapore, Cayman etc.)

• Liquidations

In court in Norway:

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Debitor

Gjeldsforhandling

Frivillig

Tvangsakkord

Konkurs

Sannsynlig utvikling

• Debitor illikvid

• Moratorium

• Gjeldsreduksjon

• Salg/likvidasjon

• Kombinasjon

• "Avtale" - godkjennelse fra

alle berørte

• Samme som over

• Tvang

• Max 75 % gjeldsreduksjon

• 3/5 eller 3/4 vedtak (+/- 50)

• Bindende for minoriteter

• Bindende for ukjent

• Debitor insolvent og både debitor og kreditor kan initiere

• Rettsoppnevnt bostyrer/borevisor

• Boet eget rettssubjekt som tar beslag i alle eiendeler

• Debitor/styret fratas alle fullmakter

• Prosess: - Salg av eiendeler/virksomhet

- Innfordring av krav

- Utdeling av dividende (iht kreditorpyramide)

- Vurdering av ansvar/straff/omstøtelse

• Kreditorene svært liten kontroll med prosess/resultat

• Kun debitor kan initiere

• Kun norske selskaper

• Rettsoppnevnt gjeldsnemnd

• Debitor beholder kontroll, men strengt tilsyn

• I hovedsak instrument for gjeldsreduksjon

• Lite egnet til restrukturering

• Liten fleksibilitet (lovregulerte prosedyrer)

• Vanskelig å administrere

• Pågående virksomhet

• Ansatte

• Markedsproblematikk

• Likviditet (garantier/forskudd)

• Finansiering

• All ny gjeld må dekkes

• Ingen særlig finansieringsløsning (DIP)

• Ingen "Cram down"

• Ingen pre-pack?

Abroad – more precisely where and what?

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Singapore

• Scheme ("super-charged/on steroids")

• Judicial management (UK Administration)

UK

• Scheme of Arrangements

• Administration (insolvency)

• CVA (company voluntary arrangement) (insolvency)

• Liquidation (insolvency)

• Receivership = "tvangsfullbyrdelse"

• (NB: Bankruptcy = persons)

Cayman Islands

• Scheme

• Liquidation

• Provisional Liquidation

USA

• Chapter 7

• Chapter 11

• Chapter 15

Bermuda/B.V.I

• Schemes (minor variations)

Why or why not Norwegian courts?

• Limited toolkit

• Generally unflexible

• Financing

• No standard "DIP" available

• Cover all new debt – risk of full bankruptcy

• May not (generally) cover any pre-existing debt

• No international recognition

• No recognition of process

• No recognition of plan/result

• Risk of

• Enforcement

• Arrest (maritime liens)

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Process

• Unknown to international creditors

• Almost always ends in full bankruptcy

• Reduction of debt – not a restructuring

• Process lead by a creditors committee

• Limited court involvement, limited creditors

involvement (except creditors committee)

• CC may in effect invoke full bankruptcy

Creditors

• Equal treatment of "all" unsecured creditors

• Finance, customers, guarantees etc.

• No actual "classing" of creditors- std priority

• Voting challenges

In short the Norwegian court process….

• Is unflexible

• Lacks modern day tools (very limited toolkit)

• Is a process driven by appointed lawyers/creditors committee (not the court/ the creditors at large)

• No cram down

• No "classing"

• No DIP

• High risk of bankruptcy (= "konkurs"; full liquidation), creditors committee may invoke full liquidation – even to safeguard themselves

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FORGET RESTRUCTURING IN COURT!

(It's generally a threat –not an option)

Recognition of foreign processes in Norway

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NorgeAnerkjenner som utgangspunkt ikke utenlandske insolvensprosesser, men mindre det foreligger særlig avtale.

Ny fjerde del til konkursloven vedtatt, men usikkert når trer i kraft

EU (inkl Norden)Lugano/Brussel konvensjonen om domsmyndighet og fullbyrding av dommer i sivile og kommersielle saker (unntak for konkurs)

Egen insolvensregulering i EU – ikke en del av EØS

Norden (inkl Norge)Konvensjon mellom de nordiske land om anerkjennelse av konkurs og gjeldsforhandling åpnet i annen konvensjonsstat.

The actual road to a deal….out of court…

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When to act? Do we act in time?

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Time

Options

available

Bankruptcy

Distress, breach of covenants, idle

assets etc.

Ordinary course

of business

The board should continuously evaluate at what stage it

has a duty to act in order to protect the interests of

all stakeholders

• Assess the current situation (e.g. review

customer and supplier contracts, loan

documentation, newbuilding contracts etc.)

• Is the company in need to adapt to the

current market situation?

• Assess the options available, e.g.:

• Restructure debt?

• Sale of non-core assets?

• Consolidation?

• Downsizing?

• Postpone delivery of newbuildings?

• Prepare a plan

• Execute the plan

Restructuring – code of conductIs there one?

First principle Provide time for diligence – relevant parties

Second principle No enforcement?

Third principle Freeze position – assess position?

Fourth principle Appropriate organization of restructuring

Fifth principle Exchange relevant information for

evaluation

Sixth principle Proposals for resolving the financial

difficulties should reflect applicable law

and the relative positions of relevant

Creditors at Standstill

Seventh principle Confidentiality – challenges with the Stock

Exchange?

Eighth principle New money obtains priority status – is this

right?

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Financing needed

(cost overrun)

Share Capital

Senior Secured

2nd prior Bond Loan

Secured Bank Loan

New Share Capital

Former Share Capital

Convertible Subordinated

Bond Loan

New Secured Bond Loan

Secured Bond Loan

Pre restructuring Post restructuring

What is the possible aim?

Do we adhere to these principles…?

Small and big

Professionals and "amateurs"

Great success for 10% = realization >15%

Moderate success for 50% = realization at 50+%

Failure for 100% = realization at less than 100 something….

Bond holders – who are they?

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FinancialDistress

Industrial vultures

Vultures

Industrial

Entry level:

100

70

50

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"Behavioural studies"

• Company/Issuer – in charge? Or "under administration"?

• Bond(s) – A rather varied bunch of people

• Banks and bank syndicates – An interesting bunch of friends and foes

• Stand still/RoR – the foundation for the restructuring period

• Communication and negotiations – who, when, how!

• Often forgotten: Who is the real equity holder in distress?

• Valuation/"perception of value" – have fun….

• Market projections – what will the future look like? We have no idea – but a number of opinions

• Time: Friend or foe; is it of the essence?

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Some general experiences:

………could it be that the most long lasting and complicated discussions are among the banks?

And a sideline reflection: do we really miss the local court option..?

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Some afterthoughts

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How to organize?

Co-ordination committee?

More controlling/

tighter approach "internal"/"external"?

How to achieve long term

strategic results (e.g.

consolidation)?

When to engage with other parties?

The "detours" –are they

necessary?

Financial advisers – the pro's and con's

Convert, control, then reorganize?

The appetite for conversion and

control

Slowly…..too slow?

CRO-?

Thank you!

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