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?

Senior secured creditors, being the anchor creditor in the capital stack, will always be focused on ensuring their priority claim is as robust as possible, with clearly delineated capacity for 'super priority' debt. However, today's documentary flexibilities, coupled with local legal restrictions, can mean senior secured creditors are not as 'senior secured' as they think. Here are some points to think about.

Super Senior Debt

HEADLINES

• In March 2020, credit insurer Euler Hermes forecast a 43% increase in insolvencies in the UK in 2021, as well as a 26% uptick in France and 12% in Germany
• By December 2020, ratings agency S&P was forecasting European defaults rising to as much as 8% by the end of 2021

There have been fewer European insolvencies and restructurings than anticipated during the COVID-19 pandemic, but distressed deal activity may accelerate as soon as economies are finally able to reopen.

On 30 October 2014, the English High Court sanctioned the second scheme of arrangement for the APCOA group (the “Scheme”). APCOA has been one of the hottest names in the restructuring market in 2014. First, it broke new ground in relation to an “amend and extend” scheme in early 2014 when it established sufficient connection to England off the back of a change in governing law. Second, the Scheme was aggressively opposed and its sanction by the High Court was appealed to the Court of Appeal (although ultimately the appeal was withdrawn).

One of the recent hot topics in the European restructuring market has been whether the UK Courts would sanction a scheme of arrangement in relation to a foreign company, with no previous connection to the UK whatsoever, where the sole basis for establishing jurisdiction to undertake the scheme would be amending the governing law and jurisdiction clauses of the company’s principal finance documents to English law.