Introduction
In light of recent reports released to the market, a lender in the leveraged loan market would be forgiven for indulging in some cautious optimism. New-issuance in July aggregated to €9.5 billion - a 13-month high. The year-to-date leveraged buy-out volume of €10 billion (38 deals) compares favourably with the €2.2 billion of volume (13 deals) for the same period in 2009. Against this backdrop, however, lenders should consider the recently released statistics from the Insolvency Service, and other economic data, which suggest that the economic outlook remains uncertain.
The recent ruling by the Bankruptcy Court for the District of Montana in the Chapter 11 case of In re Yellowstone Mountain Club LLC 1 (“Yellowstone”), which found that a senior secured lender had engaged in “overreaching and predatory lending practices”, suggests an application of lender liability theory from today’s perspective to a transaction that took place before the credit crisis.
Summary
Our experience working on restructurings across Europe and Asia has given us an appreciation for the value of preparedness. Businesses encountering financial difficulties — whether arising from turbulent financial markets, an unforeseen crisis, increasing or burdensome regulation or competitive pressure — often find their survival may depend on how well prepared they were for the unique pressures a restructuring event brings.
With companies facing significant distress due to vast over-leverage, debtors have increasingly turned to asset sales under Section 363 of the Bankruptcy Code, rather than Chapter 11 plans, to dispose of their assets quickly and begin the process of winding down their estates. According to the UCLA-LoPucki Bankruptcy Research Database, less than 4 percent of all large, public company bankruptcies were resolved by substantial asset sales from 1990-2000. However, in the period from 2001-2010, that figure rose to nearly 20 percent – peaking in 2011 when 43 percent of large pu
Introduction
Despite the prevalence of first-lien/secondlien structures in the loan market over the course of the recently-ended leveraged transaction cycle, fully-litigated cases interpreting the provisions of first-lien/second-lien intercreditor agreements remain something of a rarity. As a result, cases providing guidance on the extent to which customary waivers included in such intercreditor agreements would be enforced are always welcomed by finance practitioners. It comes as no surprise then, that the decision of Judge Peck of the U.S.
As the economy boomed in 2005-2007 and leverage increased to staggering levels, LBOs took a prominent place in the deal economy. During that time, investors completed 313 LBOs in the United States for approximately $630 billion.1 Following the recent economic downturn, many of those LBOs have become sources of controversy in a number of bankruptcies and restructurings - prominent examples include Tribune Co. and Lyondell Chemical Co.
Introduction
© 2011 Bloomberg Finance L.P. All rights reserved. Originally published by Bloomberg Finance L.P. in the Vol. 5, No. 13 edition of the Bloomberg Law Reports—Bankruptcy Law. Reprinted with permission. Bloomberg Law Reports® is a registered trademark and service mark of Bloomberg Finance L.P.