Below Anne-Marie Nicolas, Noemi Gemesi from Loyens & Loeff share their unique insights.
Could you please give us some background information about the Luxembourg Stock Exchange, and your own bond restructuring practices?
The world’s largest exchange for listing international debt securities and green bond is the Luxembourg Stock Exchange. International conglomerates and LBOs for tax or single point enforcement purposes are very fond of Luxembourg holding and finance businesses. This includes bond deals. So, many bond restructurings involve Luxembourg law elements.
Loyens & Loeff Luxembourg advises clients both on the issuer side and on the creditor/investor sides of the restructuring of bonds. This includes, for example, the following notable bond restructuring deals.
- Constellation oil services Holding S.A. was one of the members of Brazil’s Constellation Group, an oil-and gas drilling company. It participated in the $1.5 billion global debt restructuring. This included the restructuring of its $800m bonds, which were listed on the NY Stock Exchange.
- The ad-hoc group of New York-law-governed senior-secured notes of EUR350 millions on restructuring the Lowen Play Group , a leading German gaming operator;
- Corestate is an investment manager and coinvestor with EUR17.3billion in assets under management. It also manages the real estate value chain and its bond restructuring process.
What can your team do to assist with bond restructuring?
Our services include structuring, insolvency and finance, as well as strategic legal advice. We will advise you on how to deal with the bondholders and Luxembourg issuer company, taking into account possible restructuring options and security enforcement options. Also, we will discuss the duties and liability concerns of the Luxembourg board. We also assist with the tax structuring and exit planning.
Our combined expertise in bond restructurings includes legal advice regarding Luxembourg capital markets, corporate finance, tax, and debt restructuring to assist our clients with their negotiations with stakeholders, board members, and/or litigation risk. There are many options for funding new money. These include debt-to-equity Swaps, extensions of maturity, warrants, hybrid or preferred equity instrument issues, collateralisation of existing loans and/or new loan facility facilities.
Loyens & Loeff Luxembourg advises clients on both sides of the bond restructuring process, from the investor/investor perspective to the issuer side.
What are the key points of Luxembourg that are most relevant to a bond restructuring?
The following are some of the key legal points from Luxembourg that are frequently encountered during bond restructurings:
- Fair treatment of creditors and the impact this Luxembourg law principle has on restructuring negotiations.
- Recognition of the UK Scheme/Restructuring Plan , and US Section 11 Both the UK and US insolvency proceedings face challenges regarding recognition in Luxembourg. In the UK, the UK insolvency proceedings are often difficult to recognize. It is often unclear if recognition is required at all, or if it is sufficient considering the effect of the procedure and the proposed implementation steps.
- One point of enforcement. Many bond restructurings (as well as any other type debt restructuring involving Lux security packages) use the double Luxco’ and enforcement a Luxembourg share promise as a clean’ way of transferring control from the bond issuing group to the bondholders. It is difficult to get the required majority and instructions. This also depends on whether enforcement will conflict with or be part of foreign proceedings.
- Bond issuer board liability. It is possible to have nominees for the board or members of an executive board. This could make it difficult to negotiate a restructuring agreement with them. The additional difficulty that bonds are listed on the NY Stock Exchange presents is the fact that US bondholders may try to impose fiduciary duties on a Luxembourg-based board. This can cause many negotiations and discussions, especially when bondholders attempt to direct the board in a direction not consistent with Luxembourg governance principles.
- Inside information. Creditors will have access during restructuring negotiations to non-public commercial data. Some of these information might be considered inside information under Market Abuse Regulation (MAR). This applies to bonds listed in the European Economic Area. Bondholders will be prohibited from trading their bonds if they have access to inside information. These restrictions can be violated and could lead to severe sanctions. This topic is very sensitive.
What are the skills of the Loyens & Loeff staff to this operation?
It is important to be able to navigate complex restructuring or insolvency situations. However, you must also be able to adjust the legal advice to rapidly changing and sometimes stressful situations. While the ultimate goal is to reach a deal (normally), it is a key skill. We must also consider the potential liability of the board when acting on behalf of the issuer or its boards. Our creative skills in the area of bond restructurings are extensive. We can recognize the details of listed bonds as well as the mindset of bondholders, boards and other members of the bondholder community depending on their corporate culture.
Our knowledge of specific foreign markets is another key skill. We are able to analyze and compare the differences between markets, liability standards, corporate governance aspects, and other factors in foreign markets (such the US, UK, Germany, Brazil, and Luxembourg) based on our precedent experience. This includes the legal frameworks and practices of the courts in these countries. This is also useful in our advice on (litigation-related) risk assessments, especially in the context for the negotiation with bondholders.
Anne-Marie Nicolas, Partner
Noemi Geomesi, Counsel
18-20, rue Edward Steichen, L-2540 Luxembourg
Tel: +352 466 230 314 | +352 466 230 291
E: [email protected] | [email protected]
Anne Marie Nicolas is a Loyens and Loeff partner. She also heads its Luxembourg Banking & Finance and Luxembourg Restructuring practices. Her practice is focused on secured lending, acquisition finance and real estate. She is also experienced in distressed financings, security enforcements, and debt restructurings.
Noemi Gemesi, a Loyens and Loeff counsel and a member its Banking and Finance practice area. She focuses on securities law and capital markets regulation.
Loyens Loeff, a top-rated tax and legal advisory firm, is based in Rotterdam. The firm has over 1000 advisors in its offices in the Netherlands, Belgium Luxembourg, Luxembourg, and Switzerland. They offer full-service legal advice as well as specialist support to businesses worldwide.