New Money - Marking the Boundaries

The majority of all 2023 EMEA restructurings involving an equitisation and/or a maturity extension required the provision of new money. While equitisation can solve for an over-leveraged capital structure, and maturity extensions can provide runway for business recovery and turnaround, those steps alone are often insufficient without there also being a contemporaneous solution for liquidity. This has been the experience on many of our recent matters, and arguably is a symptom of the covenant-lite debt documents which dominate the market, and which often don't default until there is a liquidity crunch.

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Over recent years, a prolonged period of low interest rates, together with a competitive financing market, has resulted in greater leverage and control for private companies (and their sponsors) when it comes to negotiating terms with current and potential creditors. There has also been, as a consequence of this dynamic and the general availability of capital, an expansion in debt document flexibility over the course of the last decade. The expansion of the use of the technology in such debt documents, and the existence of relatively benign economic conditions, have enabled private companies and their sponsors to consider whether to engage in certain liability management exercises (or LMEs) when facing liquidity issues or financial distress.

On 28 March 2023, the UK Office of Financial Sanctions Implementation of HM Treasury (“OFSI”) issued the “Bond amendments and restructurings for non-Designated Persons” general licence (General Licence - INT/2023/2824812) (the “Bond Amendment GL”) under the Russia (Sanctions) (EU Exit) Regulations 2019 (the “UK Russia Sanctions Regulations”).

In this edition of the Restructuring Watch, we cover several significant developments in the world of corporate restructuring and insolvency. We examine the effective operation of the special resolution regime in relation to Silicon Valley Bank, draw out key takeaways from numerous recent restructuring plans, and discuss the most recent government report on the permanent reforms introduced by the Corporate Insolvency and Governance Act 2020. We also explore a recent judgment in the Sova Capital special administration and take a deep dive into the long-awaited Sequana judgment.

Since Russia’s invasion of Ukraine in February 2022, we have seen an extraordinary range of sanctions and export controls restrictions introduced by tens of countries worldwide. The current sanctions imposed on Russia by the United States (US), the United Kingdom (UK) and the European Union (EU) are unprecedented in both their scope and application, while Russia’s countersanction responses are similarly far-reaching and unprecedented. These sanctions restrictions, which vary by jurisdiction and continue to evolve, are impacting (and will continue to impact) restructuring transactions which we have been involved in, and navigating the resulting transactional complexities will be critical for the foreseeable future – particularly as we anticipate that further sanctions and export controls will be introduced as the war continues.

When the Corporate Insolvency and Governance Act 2020 (CIGA) introduced the restructuring plan in England, comparisons with plans of reorganization under chapter 11 of the United States Bankruptcy Code (U.S. Bankruptcy Code) were inevitable.