The following Restructuring & Insolvency practice note Produced in partnership with Phillip Taylor of Sidley Austin LLP provides comprehensive and up to date legal information covering:
The current restructuring cycle has featured bondholders playing a significant role in many restructuring cases. In previous cycles, high yield bonds featured in some larger European corporate capital structures, but most restructurings were driven by banks or other syndicated lenders. Historically, high yield bonds would often be unsecured, with little or no prospect of any recovery in a liquidation, and holders would have limited influence on restructuring negotiations. Over the last few years, market conditions led to European companies issuing more high yield bonds, the proceeds of which were used to refinance senior, mezzanine and second lien leveraged loans. Bonds issued to refinance secured loans often have the benefit of similar security and guarantee packages to the loans they refinanced. In the current cycle, senior secured bonds are more likely to have a real economic interest and, therefore, a stronger negotiating position. Although the trend may reverse, at the time of writing it is estimated that around half of all leveraged finance in Europe takes the form of bonds.
This shift in the market has changed the role of advisers to bondholders, as well as the identity of the bondholders themselves. Traditional strategies for 'out-of-the-money' bondholders included making use of whatever negotiating leverage could be found, with a view to securing a nuisance payment for consenting to an 'out-of-court' restructuring, thereby
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