Volatile credit markets and guarded banks have made securing term loan C (TLC) debt attractive for borrowers who heavily rely on letters of credit to trade but either have low credit ratings or otherwise have difficulty accessing large enough revolving facilities to support the high amount of letters of credit needed.

HEADLINES

In the current period of flux, lenders should review their finance documents regarding protections and/or vulnerabilities; and where exposed to industries particularly affected by the COVID-19 outbreak may consider (i) invoking provisions to demand early repayment and/or to preclude further lending; and (ii) whether there is material benefit in doing so. They should also consider pre-emptive steps with a view to staving off critical defaults.

At first blush, it may seem counterintuitive for financiers to compete to provide loans to debtor companies that have just filed for protection under an insolvency or restructuring procedure, but they have been proven to do so on a large scale in US Chapter 11 cases and for a variety of reasons, whether to protect an existing loan position or taking an opportunity to garner significant, safe returns as a new lender.

In the recent case Re CW Advanced Technologies Limited, the Hong Kong court took the opportunity, albeit only obiter dicta, to raise and briefly comment on certain unresolved questions surrounding three issues of interest to insolvency practitioners:

It is not uncommon to see that the law governing a loan document is different from that of the debtor company’s place of incorporation. Can the rights of the lender be altered by a restructuring plan sanctioned in the latter? The English court said “no” in a recent case1, applying the longstanding Gibbs rule that also applies under Hong Kong law.

Background

Experienced insolvency practitioners in Hong Kong are all familiar with Hong Kong Court of Appeal's decision of 1 March 2006 in the liquidation of Legend International Resorts Limited1.

A key factor contributing to the vitality and development of the common law is that judges can have the benefit of authorities from other jurisdictions with a comparable legal framework. This has proved and will be increasingly important in areas such as cross-border insolvency, where modified universalism has been thecatchword in recent years.

Did you know that a scheme of arrangement can be used to reduce the creditor constituency in a liquidation, so that time and costs can be saved for the benefit of all parties?

The Honourable Mr. Justice Ng of the Hong Kong High Court made an Order sanctioning a scheme of arrangement (Scheme) proposed by the Joint and Several Liquidators (Liquidators) of Lehman Brothers Asia Holdings Limited (LBAH) to be implemented between LBAH and certain of its unsecured creditors (Scheme Creditors).

Introduction

Over the last few years, the European leveraged finance market has seen rapid growth of senior secured high yield notes (“SSN”) and senior secured covenant-lite term loan  B (“TLB”) financings. A common feature of both SSNs and TLBs (together “Senior Secured Debt”) is that their terms typically permit the incurrence of senior unsecured debt by a borrower and its restricted subsidiaries (a “Credit Group”) subject to either satisfaction of a  financial ratio or through various permitted debt baskets.