Liability management transactions which may favour a subset of creditors over another are increasingly common in the US leveraged finance markets. 2024 may be seen as the year in which these US imports began to make a real impact in Europe. Which strategies could creditors employ to protect themselves from unfavourable treatment where such transactions are attempted?

In the current market, investors are increasingly considering their options in relation to the stressed and distressed credits in their portfolios. Whilst mindful of stakeholder relationships, secured lenders may, in some circumstances, wish to consider the "nuclear option": enforcing their share pledge over a holding company of the operating group (ideally, such pledge being over a single company which directly or indirectly holds the entire business - a "single point of enforcement").

Earlier this year, the English Court refused to sanction two Part 26A restructuring plans ("RPs") which sought to bind HMRC, the UK tax authority, into restructurings via "cross-class cram down".

Rises in energy costs, disruption to global supply chains, the situation in Ukraine, soaring inflation and higher interest rates are pushing several major European economies towards recession. Borrowers and issuers in the leveraged loan and high yield markets are feeling the impact and the benign refinancing conditions of 2021 are long gone. The natural consequence is rising default rates – S&P's global corporate default count for 2022 surpassed 2021's year-to-date tally during September.

The economic impact of the COVID-19 pandemic led to a wave of creditor schemes of arrangement ("schemes") and restructuring plans ("RPs") in the second half of 2020, which shows no sign of abating in 2021. For the uninitiated, the scheme (a long-established tool) and the newer RP process are court led UK restructuring options that a company can use to bind a minority of creditors into a restructuring. An RP can also be used to "cram down" an entire dissenting creditor class into a deal where certain conditions are met.

Despite the sector's current strong performance, many survey respondents believe the industry needs even more capital and liquidity. In addition, most expect restructurings and insolvencies to increase in 2020

The robust funding environment and expectations of increased investment reflect the aviation industry's strong aggregate performance. In large parts of the sector, both liquidity and capital remain unconstrained, not least in an era of historically low financing costs.

In September 2008, the seismic collapse of Lehman Brothers initiated one of the largest corporate insolvencies in history. Nearly ten years later, in a landmark decision, the High Court has sanctioned the scheme proposed by the administrators of its principal European trading arm, Lehman Brothers International Europe ("LBIE").1

It cannot have escaped the attention of anyone involved in the aviation finance industry that the UK is currently in the process of ratifying the Cape Town Convention (being the Convention on International Interests in Mobile Equipment and related Protocol on Matters Specific to Aircraft Equipment). Here, we will look at that ratification process and consider the principal legal and practical implications for our clients.

Ratification Process