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Jumping the line: priming restructuring transactions during the COVID-19 crisis
Over the past year, the COVID-19 crisis has caused liquidity issues for many US businesses, which has forced some borrowers to resort to increasingly creative restructuring options. These have generally fallen within two categories – “dropdown” transactions and “uptiering” exchange transactions, both of which have seen borrowers take steps under their credit agreements to prioritise one set of lenders over another. This article tracks the key cases in the US market and offers a flavour of what may be arriving soon on European shores.
1 FEB 2021The suspense ends: court says certain ISDA bankruptcy defaults can be cured
In 2012 the Court of Appeal ruled that the counterparties of Lehman Brothers International (Europe) (LBIE) who had transacted under ISDA Master Agreements could suspend payment to the administrators indefinitely for so long as the Event of Default occasioned by the appointment of the administrators was continuing. As it has become ever clearer that LBIE will one day exit administration as a going concern (on a solvent basis), the administrators have maintained that the Event of Default will cease to be continuing and the holdouts will have to pay up. In one of the first cases to be heard virtually at the start of the COVID-19 pandemic, the administrators were finally able to ask the court whether implementation of their proposals for ending the administration would mean that the Event of Default was no longer continuing. This autumn the court ruled for the administrators.1 In addition to discussing the meaning of “continuing”, the judgment pays particular attention to what constitutes a Bankruptcy Event of Default under the 1992 and 2002 ISDA Master Agreements. Within the analysis, key variables were the importance to be given to factors such as the impact of an event on the counterparty’s credit risk and the permanent effect of the event on creditors’ rights. The granular analysis will be relevant to users of the ISDA Master Agreements but also to users of other contracts with similar wording such as credit derivatives.
1 JAN 2023
