Trade Alert - January 2016, Issue 25



The District Court of Reykjavik granted the requisite final exemption approvals in December 2015 and approved each of Glitnir, Kaupthing and LBI to implement the terms of their Composition Agreements with creditors.

A composition agreement with creditors, in general terms, provides for the extinguishment of the creditors’ claims against a debtor in winding-up proceedings in replacement for rights to new instruments for all creditors of the same class on a pari passu basis. 

Buyers of the new instruments under the composition agreements therefore need not due diligence or be concerned with the old claims, provided the Seller provides good title (and any other relevant representations) as to its interest in the notes and shares, and transfers all corresponding rights and benefits to the new instruments to the buyer on the settlement date.

As announced on the relevant websites, each of Kaupthing, Glitnir and LBI will be providing eligible creditors with (i) a cash payment (ii) notes and (iii) shares.

Eligible Article 113 Unsecured Creditors should have now received an initial de minimis cash payment from Glitnir and Kaupthing, with LBI expected to follow shortly.  Creditors have been or will be receiving new Notes and Shares in proportion to their total aggregate claim holdings, which must transfer together in accordance with the terms of the documentation.

Creditors can access the composition, notes and shares documentation and entitlements via the secure area of each of the  Glitnir, Kaupthing and LBI websites. 

The Composition Documentation contains confidentiality and disclosure restrictions and investors should seek advice before providing any documentation to a counterparty.  We have limited the information provided in this alert accordingly.

Tracy Dariane reviews some of the key trading considerations for shares of an Icelandic company and general considerations for creditors subject to the Composition Documentation, to the extent publically available.

Tracy Dariane
+44 (0) 20 7170 8650


Glitnir was the first entity to implement the Composition Proposals and made a de minimis cash payment to eligible creditors on 18 December 2015.

Glitnir Holdco ehf., adopted the new Articles of Association and  issued the New Notes and A Shares to entitled creditors on 11 January 2016.

Certificates for the New Notes and A Shares have been circulated to all eligible creditors who have recognised claims. Copies of the certificates, together with the terms and conditions of the Notes and the form of Transfer Certificate for the sale of the Notes and A Shares are available on the secure section of the Glitnir website.

A shareholders’ meeting of Glitnir HoldCo ehf. took place in Reykjavik on 29 January 2016 where the new board of directors were appointed.


Kaupthing made initial distributions of its De Minimis Cash Payments on 15 January 2016 to all eligible creditors under the Composition Agreement.

In addition, the Composition Cash Payments and the new Notes and Shares will be issued in accordance with the Composition Agreement and will be distributed to eligible creditors provided that the requisite Entitlement Letter has been submitted to the Winding-Up Committee. The Notes will be GBP denominated non-interest bearing convertible notes issued together with ISK denominated ordinary shares in Kaupthing ehf.

Kaupthing will be announcing a date for the shareholder’s meeting to appoint the new Board of Directors following the issuance and delivery of the Notes and Shares. Please click here for the recent update from Kaupthing.

Arion Bank hf announced a funding agreement with Kaupthing on 12 January 2016 for Arion to issue a 7 year bond under its EMTN Programme in the amount of USD747,841,000 (ISK97bn) with interest at LIBOR +2.5% for the first two years.  This is to offset loans in foreign currency taken by Arion from the CBI (which are now owned by Kaupthing) and deposits of Kaupthing in foreign currency held at Arion Bank.


As at the date of publication, the Winding-Up Board of LBI hf. is still processing Claims Transfer Request Forms via the Claims Transfer Agent, Epiq. LBI has published a Notice on the public website stating that the Legal Transfer window will be closing on 2 February 2016 in order for the bank to implement the next stage in their Composition plan. The Transfer Register will not be updated for any claim transfer that has not received a Notice of Successful Transfer by this date.

It is expected that further information regarding the Composition and the distributions to Creditors will be published shortly thereafter.

Please click here to view the recent notice.



It is expected that the new Notes and Shares issued by each of the banks will be “stapled”, trading together in accordance with the transferor’s pro rata holding of Notes and Shares. Glitnir has provided guidance to creditors on its transfer process, but it is yet to be confirmed for Kaupthing and LBI. 

It is envisaged however that transfers on the secondary market, will either be via Epiq (subject to a similar process to the transfer of the original claims) or via Euroclear and Clearstream. Under Icelandic law, legal title to the Shares and Notes will pass to the transferee upon registration in the relevant Shareholder’s and Noteholder’s Register respectively of each company.

The transferee should satisfy itself that it has good title to the composition distributions, prior to payment of the purchase price in respect of the trade.

Trade documentation

Market participants are already executing secondary trade documentation based on the Loan Market Association (“LMA”) form, which is English law governed, as well as the transfer form documents provided under the Composition Documentation for the transfer of the new Notes and Shares.

Cadwalader has prepared forms of Trade Documentation to address, inter alia, representations as to title to the assets, issues of transferability and the relevant eligibility criteria of the buyer.

Please contact Shelley Kay for further trade information.


Any holder or purchaser of a Note instrument must satisfy its own local law requirements to be eligible, unless the Note issuance meets certain criteria or falls within an exemption. If the Notes are not registered under the U.S. Securities Act 1933 (the “Securities Act”) or traded on a publicly listed exchange, consideration should be given to US Securities law restrictions when selling Notes to a counterparty.

It is therefore important that a holder or buyer satisfies itself that it meets the any eligibility criteria as may be required by each composition agreement, in order to successfully obtain title to the Notes and Shares. The Notes and Shares will only be issued to creditors who are either (i) non-US persons located outside of the US in accordance with Regulation S under the Securities Act; or (ii) Accredited Investors (within the meaning of Rule 501 of the Securities Act) who are also Qualified Purchasers (within the meaning of the Investment Company Act 1940) in private transactions exempt from registration under the Securities Act.


Dividends of an Icelandic entity paid to a non-resident company are subject to 18% tax (20% for individuals), which may be reduced under a tax treaty concluded with the country of the recipient, provided that an application is submitted to the Icelandic tax authorities. In addition, the final taxation of dividends paid to a company within the EEA is 0%, as withholding tax is reimbursed the following year provided a tax return is submitted to the Icelandic tax authorities.

Interest paid to a non-resident company is subject to a 10% withholding tax, which again may be reduced by a tax treaty, provided the relevant forms are submitted to the Icelandic tax authorities. 

Stamp Duty

Icelandic law does not levy any stamp duty on the transfer of Notes and Shares. However, stamp duty is charged at a rate of 1.6% for execution of changes in ownership of real estate and ships.

Capital Gains Tax

It is possible that Capital Gains Tax may apply to a disposal of Notes or Shares. Advice should be taken on a case-by-case basis, but will depend on value at the time of sale and purchase.

The tax and other information contained in this Trade Alert refers to the laws in Iceland generally at the time of going to print.  Composition Creditors and buyers of new Notes and Shares in connection with any composition should seek advice to determine any tax or eligibility issues at the time of trade.

Special Note:
Special thanks to Heiðar Ásberg Atlason from Logos, who assisted with this Trade Alert.



An agreement was reached between Italy and the ECB on 27 January 2016 with a view to assisting Italian banks to sell large portfolios of non-performing loans to private investors with a government guarantee. With an estimated EUR350bn of non-performing Italian loans, the market for NPL sales may finally get going. While the precise terms are currently unclear, the government will only guarantee the senior tranches of any loan package and the guarantees are priced at market rates, so the scheme does not constitute state aid.

For Financial Times Article, click here.


David Cottle
+44 (0) 20 7170 8722

Buyers of asset hedges (including as part of a wider loan portfolio purchase) should be aware of the following issues which can, if deemed commercially material, be made the subject of relevant seller representations:

  1. Transfers of live hedges are usually completed by novation and will require borrower consent. Where the borrower has defaulted the hedge can be terminated and borrower consent to transfer of the termination amount would not typically be required.
  2. Buyers who cannot close quickly or who cannot be party to a hedge (because they do not satisfy any required hedge counterparty credit ratings for example) can appoint a fronting bank and take an economic pass-through.
  3. Hedge transfers are typically closed using ISDA standard documents with narrow seller representations. Wider LMA seller representations may be provided where they are already being given in relation to the loans in a wider loan portfolio purchase. Representations depend on the negotiating leverage of the buyer and the validity of the termination process and calculation methodology used.
  4. The intercreditor should be checked to determine whether hedge payments rank pari passu with loan payments, whether there are any restrictions on hedge termination/payment, and whether hedge payments remain secured in the hands of the buyer.
  5. In an insolvency context the ISDA hedge termination and valuation process may be open to scrutiny by an insolvency officer (as laid out below) - and buyers may want to consider additional seller representations and/or disallowance.
  • Procedural errors - are the dates of delivery and addressees of the termination and valuation notices (and is the required supporting documentation) as required under the ISDA?
  • Mechanical calculation errors - are the underlying data and calculations as required under the ISDA?
  • Subjective/discretionary valuation methods - are often challenged so buyers should request all supporting evidence from seller including details of any proprietary information/models (where possible) and justifications for any elections/discretions used.



Abengoa’s default on certain of its debt  obligations has been deliberated by an ISDA Credit Derivatives Determination Committee (“ISDA DC”) which decided that a Failure to Pay Credit Event has occurred. The final list of Deliverable Obligations for the auction has now been published by ISDA on its website.

Currently, the company benefits from the protection afforded under article 5 bis of the Spanish Insolvency Law until 28 March 2016 and must come to an agreement to stabilise its capital structure prior to this in order to avoid directors being forced to file for concurso. The company announced on 25 January that Alvarez & Marsal presented a viability plan to the company’s Board providing for key operational changes.

Abengoa is reported to have secured a EUR 113m new money loan with a short term maturity at the end of 2015. However, some market observers are of the view that this may not be enough to keep the company afloat until the 28 March deadline.

  1. W. BUNKER

On 28 December 2015 the Danish bankruptcy trustee of OW Bunker & Trading A/S released a report following investigations regarding possible legal liability in relation to the financial collapse of the group in November 2014.

This is a matter of interest to the shareholders of the company, some of whom have sued the company for losses relating to misrepresentations in the IPO prospectus relating to the listing of the company on NASDAQ OMX Copenhagen on 28 March 2014. The report states that, in the bankruptcy trustee's opinion, the oil trading activities of group company Dynamic Oil Trading (Singapore) Pte. Ltd. should have been known about by management but were not disclosed to potential shareholders leading up to the listing of the company. The report also scrutinises the behaviour of the company's advisers including its auditors and lead bookrunners.


The controversial move by the Bank of Portugal to transfer five Portuguese law governed bonds (out of 52 senior bonds) with a nominal amount of some EUR 1.95bn from Novo Banco to Banco Espirito Santo S.A. on 29 December 2015 is was considered by an ISDA DC. The issue - whether this amounts to a “Governmental Intervention” Credit Event has been referred to an external review panel (click here for a brief summary of how the ISDA DC workings lead to an external review).

The issue whether a Succession Event has occurred is also being considered by an ISDA DC; a decision has not been reached yet.

Novo Banco’s bailed-in bondholders are also reported to  be seeking legal advice regarding possible challenges the decision on the grounds that creditors within the same class have not been treated equally or equitably.

Adam Colman
+44 (0) 20 7170 8633

Adam Colman is an associate in the Financial Restructuring Group and the Debt & Claims Trading practice in Cadwalader's London office.

Adam specialises in advising bank and fund clients on UK and cross-border loan and claims trading transactions, and also has a wide range of experience working on other finance and corporate matters, including, private acquisitions, primary lending, credit reviews, bespoke options and ‘cashless rolls’.


Cadwalader News

ACI Summit on Controlled Substances: Regulation, Litigation and Enforcement

Jodi Avergun is speaking at this ACI event on January 30 in Washington, DC.

Cadwalader Subscription Center