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Coronavirus (COVID-19) Tracker of Insolvency Reforms

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Mastering the media during Coronavirus

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The 54th session of Working Group V began in Vienna with the nomination of a new Chair, Harold Foo from Singapore. The objective of the session was to consider the problem of insolvency in relation to…

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Activist Stakeholders in London: Changing Dynamics in Restructuring
Over 60 delegates from the financial and banking services sector met in London on the evening of 2ndDecember for the third joint INSOL International and INSOL Europe Financiers’ Group Panel session and reception.

The meeting was hosted by NatWest at their London offices and opened by Sean Pilcher, Fellow, INSOL International, NatWest. Alastair Beveridge, immediate past-President of INSOL Europe and member of the INSOL Executive Committee welcomed the delegates and introduced the panel.

Chaired by Raquel Agnello QC (Erskine Chambers), the panel of top UK industry experts – Simon Baskerville, Latham & Watkins; David Beckett, SC Lowy; Martin Gudgeon, PJT Partners and Nick Ram, Lloyds Banking Group – started the discussion observing that the credit market have seen an increasing complexity of capital structures and new classes of lenders and investors.

The panel reminded the audience that traditionally, companies were funded by loans from traditional banks. Only large, well-established corporations had access to the public debt markets. Corporate loans were syndicated to a limited number of commercial banks that held the debt until final maturity. The banks would monitor the borrower more intensively and the borrower would have had to negotiate with a limited number of banks in the event of stress. 

The rise of loan trading and the number of non-bank institutions in the credit markets made this approach obsolete. Loan trading has made restructuring processes more complex as the number of debt holders has increased and alternative investors can have a more aggressive negotiating stance than traditional banks. Loan trading has the potential to increase lender conflicts during negotiations as the incentives of par lenders are not the same as those of secondary market participants – a restructuring proposal may be acceptable to a lender that bought into the debt at below par, but unacceptable to a primary lender that provided the original loan at par.

The panel explained that in recent years the UK has seen innovative financing structures, such asthe credit default swap (CDS) market, in which new stakeholders have created a changing dynamic in restructuring. CDSs are derivatives that behave like insurance contracts, protecting holders against the risk that a company does not repay its debts. The credit default swap market has created a whole new category of investors that stand to make more money on CDSs if a company defaults than they would if it repaid its debts. Other stakeholders, such as regulators, landlords and pension trustees, are becoming increasingly sophisticated and activist in their approach. The panel discussed the impact of these stakeholders on restructuring in an ever more dynamic and evolving market.

After an hour or so of lively debate the session was brought to a close by Piya Mukherjee, current President of INSOL Europe, with the conclusion that financial restructurings in the UK are inherently complex and more challenging and a request for more people to get involved with the Financiers Group in order to enable this kind of forum to continue. Delegates enjoyed light canapés after the event and spent some time networking before dispersing into the City.
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