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Drying Liquidity, Looming Maturities in Tense Geopolitical Environment to Drive Restructuring Uptick in 2024 After Slow Burning 2023; More ‘Holistic’ Workouts Expected

After years of “waiting for the wave,” 2024 might be the time when activity in the restructuring market may finally pick up. Wars in Ukraine and the Middle East, U.S. elections and weakening Chinese growth paint a testing picture for the world economy. Well-known challenges such as higher-for-longer interest rates, near-zero economic growth in Europe and a cost-of-living squeeze entering its third calendar year all add to the possibility of an animated year on the distressed debt front, despite the current strength of the high-yield bond market.

Last year, restructuring negotiations often revolved around the size of the new money check sponsors had to write for lenders to agree to amend-and-extend deals. Shareholders no longer able to reinvest were forced to hand over the keys to creditors, resulting in a rise in debt-for-equity swaps.

The companies that avoided operational issues still had access to debt capital markets, but with key interest rates staying elevated, the price often doubled compared with cheap pre-pandemic debt.

“Looking ahead, the number of structures facing debt maturities in the next couple of years is significantly higher than last year. Many cap stacks, which would previously have achieved a refinancing or pretty easy amend and extend, will find such pure balance sheet solutions harder to come by. More holistic restructurings, including operational restructurings, will be required to bring interest costs and leverage levels to a sustainable quantum,” Helena Potts, financial restructuring partner at Paul Hastings told Reorg.

According to various data providers, including Reorg’s own data, there are approximately €76.5 billion of high-yield bonds maturing in 2024 and 2025. Although the maturity wall is weighted toward 2025, there is still significant work to be done on the €24.5 billion of notes due in 2024.

Potts added that in 2023 companies faced a series of interest rate hikes, and as yet, those with significant reserves have not felt too challenged by the impact on their cash balances. But cash reserves are becoming more constrained, particularly in the mid-market sector. “Across all capital structures there is an absence of early warning signals for lenders and this can lead to situations becoming sub-optimal for all stakeholders, as there is not sufficient time to find rescue packages where the liquidity road just runs out,” she said.

Unlock comprehensive insights by downloading the 2023 Restructuring wrap now and delve into the complete report.

For more reports and guides by Reorg, please click here.

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Restructuring Plans Challenged; FCA Creates Hurdles for Schemes and Gibbs Here to Stay

Reorg has analyzed the key restructuring and insolvency litigation from 2023 and distilled the key takeaways.

Key New Guidance From 2023

Court of Appeal Examines Part 26A After Creditor Challenge: Undue Pressure, Valuation, Restructuring Surplus Considered

• This is the first Part 26A to go to the Court of Appeal. Under the original plan pari passu ranking creditors were given different treatment.
• A successful appeal will provide a precedent for equal treatment of creditors with equal rights under a plan, regardless of cross-class cramdown.
• Following the sanctioning of Adler’s Plan in the English High court, challenging creditors have sought to challenge the plan and have it set aside by the Court of Appeal with the hearing raising several issues:
  • (i) The pressure expedited sanction hearings placed on the court, especially in the context of valuation disputes;
  • (ii) The question of who gets to dictate how the restructuring surplus is shared; and
  • (iii) Whether there should be a framework to structure the court’s discretionary power to sanction a plan.
• The European restructuring industry keenly awaits judgment from the English Court of Appeal on this. Lord Justice Snowden is expected to deliver the main judgment in the coming weeks.

Unlock comprehensive insights by downloading the 2023 Litigation wrap now and delve into the complete report.

For more reports and guides by Reorg, please click here.

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

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Exploring current themes and what lies ahead for the primary and distressed markets.
In-person only event at the Biltmore, Mayfair.

November 2, 2023
3:30 PM-8:00 PM

You’re Invited! If you haven’t registered yet, we cordially invite you to join us.

Agenda at a Glance

• Registration: 3:30 – 4:00 p.m.
• Welcome by Global Head of Editorial, Mario Oliviero: 4:00 – 4:05 p.m.
• Performing Credit Panel: Debut Issuers Return as Sponsors and Investors Embrace New Normal, moderated by Bart Capeci, including audience Q&A: 4:05 – 4:55 p.m.
• Spotlight on ESG by Luke Wood: 4:55 – 5:05 p.m.
• Distressed Panel: Lenders Take Charge as Sponsors Run Out of Options in High Interest Rate Market, moderated by Magnus Scherman, including audience Q&A: 5:05 – 5:55 p.m.
• Cocktails, Canapes and Networking: 5:55 – 7:45 p.m.

Bart Capeci will moderate the performing panel ‘Debut Issuers Return as Sponsors and Investors Embrace New Normal’ featuring guests Camille Mcleod-Salmon from Fidelity International, Jamie Cane, CFA from Muzinich & Co, Natalie Day Netter from J.P. Morgan and Pieter Staelens from CVC Capital Partners.

Magnus Scherman will moderate the second panel ‘Lenders Take Charge as Sponsors Run Out of Options in High Interest Rate Market’ which will be moderated by Magnus Scherman. This panel includes experts Christian Herrmann from Polus Capital Management, Gani Diwan from Triton Partners, Sam Whittaker from Lazard and Toby Smyth from Simpson Thacher & Bartlett LLP.

In-person only attendance for credit professionals in London.
Register today for great content and networking over cocktails and canapes.

We send a weekly roundup of Reorg content ranging from breaking news to in-depth financial and legal analysis as well as the latest podcasts that you can listen to and webinars that you can register to attend. Sign up to Reorg on the Record here.

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During a year of many economic uncertainties, it was reassuring to see the usual ‘‘summer slowdown’’ of the European high-yield and loans primary market. Activity was limited to loans with a few add-ons and amend and extends, or A&Es, as expected.

At Reorg, we used the summer sluggishness as an opportunity to reflect on new developments in 2023, such as the “snooze drag” technique to facilitate A&Es in leveraged loans and the drive to enhance transparency in the realm of ESG.

In our continuing 101 education series, we explained the basics of a liability management exercise, or LME, and U.S. originated “lender-on-lender violence” technology in the European context. LMEs have many purposes, one of them being for companies to creatively manage their financial stress, sometimes by pitting one set of their creditors against another to attract new financing.

This 101 installment came at a convenient moment as news emerged that spandex maker Lycra’s creative LME in the form of a variation of a ‘‘J.Crew’’ style drop-down transaction was short-lived. Shareholders, creditors and Lycra agreed to unwind the drop-down transaction and to provide protections to prevent it happening in the future.

ESG Monitor/Covenant Trends

H1 2023 Sustainability-Linked Loans Wrap

Sustainability-linked loan issuance in the first half of 2023 was stifled through the dominance of A&Es in the European leveraged loan market, which tends to recycle existing terms and be cautious in inserting new terms such as ESG-linked margin ratchets.

However, when A&Es are stripped out, issuance levels in the first half of 2023 for sustainability-linked loans are consistent with the previous years.

One of the more positive signs emerging from trends we examined in the first half of 2023 is the drive to improve transparency. More fulsome information in the form of sustainability reports and external verification from independent third parties is required in nearly all sustainability-linked loans in the first half of 2023.

Read the full article here.

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

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During the first half of 2023, Reorg saw 23 debtors close restructurings, considerably more than the 14 that closed deals in H2’22 and 15 in H1’22.

Restructuring activity has increased in 2023, but still falls short of 2020 levels, which saw 61 restructurings close across the year.

Only 35% of restructurings closed consensually, out of court, in H1’23. This compares with 43% and 60% in H1’22 and H2’22 respectively. There appears to be a trend of debtors being more likely to pursue in-court restructurings, with a correlating increase in challenge – 22% of deals attracted a challenge in H1’23, compared to 17% during the whole of 2022.

There are 39 restructurings currently live, 14 of which are in a court process, notably seven are in U.K. court processes (CVAs, Scheme or Part 26A Plans). As of January, this number was 45, suggesting that deals are closing.

Included in the definition of restructuring are both consensual and non-consensual transactions, which featured at least one of the following: (i) an exchange of existing debt for new debt with different terms; (ii) the provision of new money through a new instrument; (iii) the equitization of existing debt instruments; and (iv) the amendment and extension of the maturity date of existing debt instruments.

Read the full article here.

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Register Now here.

Join Reorg on Friday, July 28, as we discuss the background to Thames Water’s recent troubles and discuss what may lie ahead for the company, its shareholders and creditors. 

Panelists:

• Celine Buttanshaw, Legal Director
• Wayne Jambawo, Credit Analyst
• Connor Lovell, Senior Legal Reporter

Our expert team will provide:

• A brief summary of the U.K.’s water regulation framework and the relevant special administration regime;
• An overview of the events and financial performance leading up to the government’s announcement that contingency planning had begun;
• Market views on the group going forward.

You can find recent coverage on Thames Water here.

Please submit any questions in advance here.

Register Now here.

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In light of macroeconomic headwinds, rising central bank rates and the resulting difficult conditions for refinancing seen since the first quarter of 2022, Reorg has started tracking amend-and-extend, or A&E, transactions in the European leveraged finance market.

Our recent report, compiled by the EMEA legal team, highlights key trends based on our intelligence on A&Es gathered to date:

• Since July 2022, 70 different tranches of debt have been subject of a consensual A&E, with 52 of those being launched in 2023 alone.
• Borrowers typically launch their A&Es with an average remaining time to maturity of 21 months.
• The average extension period seen is 29 months, with a range of six to 51 months. 

Learn how Reorg’s A&E tracker can help you and your team manage upcoming debt maturities during challenging macroeconomic times. Read the full article here.
Learn more about Reorg’s EMEA Core Credit and Covenants product, or contact us with any questions.
Request a trial.

Following the U.K.’s departure from the EU in 2020, distressed European companies continue to make use of English restructuring tools such as the scheme of arrangement and Part 26A restructuring plan.

The English courts have overseen the expansion of scheme jurisdiction in the past 20 years, typically finding the development as an example of “healthy” or “good forum shopping” and since the introduction of the new Part 26A restructuring plan in 2020, this approach has been continued. Most recently, German real estate group Adler chose to restructure its debt using an English restructuring plan rather than make use of its new German equivalent, the STaRUG.

This installment of the RX 101 series reviews the relevant case law and sets out key considerations for offshore companies and their creditors seeking to use English law schemes of arrangement and Part 26A restructuring plans to compromise their liabilities.

Since the new restructuring plan was explicitly designed to build on existing scheme case law, all references to “schemes” in this article incorporate both schemes of arrangement and Part 26A restructuring plans.

Read the full article.

Dive into Reorg’s content and data sets for a limited time to help understand how it can improve your business. Request a trial

Our expert team will provided an overview of:

• How the market for bond and loan covenants responded to the turbulence of 2022;
• How investors pushed back on aggressive terms;
• The outlook for 2023; and
• How borrowers will use the terms of existing documentation to manage their liabilities.

Watch the replay.

See Reorg’s EMEA Covenants coverage.
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Throughout the year, Reorg hosts webinars bringing together industry professionals to discuss themes in the performing, distressed, restructuring and post-reorg credit markets. Reorg’s webinars cover topical credits and industry updates. They’re produced by our reporters and analysts with selected external guests.

Americas Webinars from 2022:

1. Primary in the Eye of the Storm: Challenges and Opportunities in Leveraged Finance in a Downturn
2. Hot Topics in Crypto Winter
3. Winter Came for Covid-Era Darlings? – Distress in Crypto and Tech
4. Bausch’s Remedies for Potential Patent Defeat & Creditor Angst Over B+L Spin
5. Puerto Rico’s Restructuring Endgame and Beyond
6. Revlon – Chapter 11 Cases and Creditor Disputes
7. CLO Considerations for Distressed Investors
8. Diebold Nixdorf: Can Significant Unencumbered Assets Overcome Massive Maturity Wall?
9. Talen Energy Chapter 11 Filing
10. The Texas Two-Step: LTL J&J Chapter 11 and Likely Future Filings
11. Samarco – Testing Brazil’s Bankruptcy Reform
12. Loan Market Trends in 2021 from Americas Covenants
13. No Surprises Act Rollout: Implementation and Litigation Challenges Ahead

If you would like to be panelist on our upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

Request a trial here.