Trade Alert - July 2017, Issue 43


AGROKOR: Agrokor d.d the food and retail group employs 60,000 people in Croatia and has revenues of EUR 6.5bn, equivalent to around 15 per cent of Croatia’s gross domestic product. On 10 April 2017, pursuant to the decision of the Zagreb Commercial Court, Agrokor d.d. (together with certain of its Croatian affiliates and subsidiaries, “Agrokor”) was placed into “extraordinary administration” under the Law for the Extraordinary Administration for Companies with Systemic Importance for the Republic of Croatia (Official Gazette of the Republic of Croatia nr. 32/2017) (“Lex Agrokor”), which was enacted by the Croatian Parliament just days before.

Debtwire reports that Agrokor has received nearly 12,000 claims from potential creditors. In addition, the Financial Times reports that nearly EUR 2.2bn of Agrokor’s debt is to domestic suppliers.

On 11 May 2017, Agrokor reported group consolidated liabilities as at 31 March 2017 in excess of EUR 6bn[1]. As Croatia’s largest employer and privately owned company, Agrokor now faces challenges which will have wider implications for Croatia’s economy.


On 9 June 2017, Agrokor entered into a financing arrangement (the “New Facility”) of up to EUR 1,050mn with certain creditors (including members of the ad-hoc committee of bondholders and Zagrebačka Banka). The New Facility includes a refinancing provision whereby for every EUR 2.0 of new financing provided, EUR 1.0 of pre-petition claims shall be refinanced. Participation in the facility has been allocated among three separate classes of pre-petition creditor[2].

This Trade Alert summarises some of the key issues for investors to consider when acquiring loans in the Republic of Croatia.


Lex Agrokor introduces an extraordinary administration procedure for financially distressed companies of systemic importance to the Republic of Croatia. Pursuant to Article 11 of Lex Agrokor, a state appointed trustee is installed to manage the rights and obligations of the debtor company and its affiliates. The trustee must propose a settlement plan to creditors within 12 months of the commencement of proceedings (which may be extended by up to three months by the Commercial Court of Zagreb). The trustee’s proposal requires the consent of the creditors' council.

The trustee may raise new financing on a super senior basis in accordance with Article 39 of Lex Agrokor, with the consent of the creditors’ council. Such new financing will rank ahead of all creditors' claims other than the claims of employees.

During the extraordinary administration procedure, no enforcement, security or other proceedings can be initiated against the debtor or its affiliates, other than in respect of employment disputes.

To the extent that matters concerning the extraordinary administration procedure are not provided for in Lex Agrokor, the Croatian Bankruptcy Act (the “Bankruptcy Act”), which came into force on 1 September 2015, will apply.


Foreign investors are not typically required to obtain authorisation from the Croatian National Bank (the “CNB”) for the purchase or sale of either: (i) fully drawn term loans made to a Croatian corporate borrower or (ii) facilities made to a Croatian corporate borrower which may require further draw-downs (e.g. a revolving credit facility).


Both performing and non-performing loans are typically transferred by way of a ‘Claims Assignment Agreement’.

The Claims Assignment Agreement is akin to an English law assignment of rights and assumption of obligations under the loan.

Unless otherwise stated in the credit documentation, the assignment does not require the consent of the debtor. However, the debtor should be notified of the assignment in order to ensure that the debtor cannot validly discharge its obligations by paying the assignor.

Furthermore, unless otherwise stated in the Claims Assignment Agreement, any “accessory rights” relating to the loan (e.g. guarantees and security) will be assigned to the assignee, although additional legal formalities may need to be completed in order to register such interests in the assignee’s name.

Funded participation structures are recognised in Croatia, although they are not expressly dealt with under Croatian law.


There is no equivalent to a common law trust in Croatia. Accordingly, parallel debt structures may be used in Croatia in order to ensure that a security agent (rather than a security trustee) is able to enforce the security on behalf of a fluctuating group of lenders, particularly for syndicated loan facilities. The validity of parallel debt structures remains untested in the Croatian courts.

Where registered security is to be transferred under a loan facility, the grantor of such security interest will need to consent to the transfer of the security to the transferee pursuant to Section 81 of the Croatian Civil Obligations Act 2005. Whilst the benefit to the security will be transferred by way of assignment, where such security is registered, consent will still be required in order for the transferee to hold legal title to the security. Where such consent is refused, the transferor will hold the security interest for the benefit of the transferee.


To establish a valid security interest in Croatia, the relevant security agreement will need to be made public and perfected.


Foreign creditors may not initiate formal enforcement action against a debtor, nor be a party to any legal proceedings (including bankruptcy proceedings), without obtaining a Croatian personal identification number, issued by the Tax Administration.

Where the secured asset is property and an event of default occurs, the lender may ask a public notary to issue an enforceability confirmation in relation to the security documents. Such notary may then submit an enforcement proposal to court and enforce the security by way of public auction of the secured asset.


Under the Croatian Profit Tax Act, withholding tax (“WHT”) at a rate of 15% is levied on interest payable to foreign entities other than natural persons.

The rate of WHT may be reduced or an exemption may apply under a double tax treaty or the EU Interest and Royalties Directive.


Stamp duty does not apply to the transfer of loans in Croatia. However, stamp duty may be payable where security needs to be re-registered in favour of a new lender (e.g. mortgages).


In addition to Lex Agrokor, the Bankruptcy Act regulates both pre-insolvency proceedings and bankruptcy proceedings.

A debtor will be considered insolvent where it has outstanding monetary obligations (registered with Croatia’s state-governed financial mediation company (“FINA”)), which have not been settled for more than 60 days or where it has not paid three consecutive salaries to employees. A debtor will be considered over-indebted if its obligations are greater than its assets (a.k.a. “balance sheet” insolvency).

Under both the pre-bankruptcy procedure and the bankruptcy procedure, there will be a moratorium on proceedings being commenced against the debtor in relation to unpaid monetary obligations.


These are voluntary proceedings initiated directly by the debtor or by a creditor with the consent of the debtor, or where a competent commercial court deems that the debtor will be imminently insolvent.

Under such proceedings, the debtor will propose a pre-insolvency plan to the company’s creditors.

The pre-insolvency procedure does not affect the management of the company and the debtor is able to carry on its business but may only make payments which are necessary for the company in the ordinary course of its business.

Pre-bankruptcy proceedings cannot be commenced against certain financial institutions (including, without limitation, credit unions, credit institutions and insurance companies).


Bankruptcy proceedings can be initiated by a creditor, the debtor or FINA, where a debtor is either insolvent or “over-indebted”. Where the debtor has registered monetary obligations with FINA it is obligated to initiate proceedings where such monetary obligations are outstanding for a period exceeding 120 days.

A court appointed bankruptcy administrator will assume the management of the debtor company. The court is authorised to permanently supervise the bankruptcy administrator and has the power to remove such persons.

Creditors should be aware that under the Bankruptcy Act, legal actions that are taken by the debtor prior to the opening of bankruptcy proceedings that: (i) cause damage to creditors; or (ii) constitute preferential treatment of certain creditors, may be contested by the administrator. Debtor actions can be challenged for a period of between one month and ten years, depending on the type of legal action being contested.

Special Note

With special thanks to Irena Šribar Radić at Gjurgjan & Šribar Radić Law in Croatia, who assisted us with this Trade Alert.



New transfer process: no longer via Epiq

On 30 June 2017, Glitnir announced that as of 1 July 2017 it would be assuming all administrative responsibilities currently being handled by Epiq related to its Composition, Notes and Share Transfer Process, and any other tasks related to these processes.

As a result, Epiq will no longer be involved with the transfer process. All future enquires should be directed via email to:

For more information, please visit Glitnir’s website at


Unscheduled payment confirmed to be EUR 146,561,602

On 17 July 2017, LBI set out a notice of unscheduled payment under the Trust Deed dated 23 March 2016 and made between the Issuer, the Trustee and the U.S. Trustee (as amended in a noteholder meeting on 28 November 2016).

The Issuer published a notice to bondholders that the final amount of Euro Equivalent Available Cash paid on 21 July 2017 was EUR 146,561,602. For more information, visit LBI’s website here.


George Pelling Associate, London

+44 207 170 8569

George Pelling is an associate in the Financial Restructuring Group and the Debt and Claims Trading Practice in Cadwalader's London office. George advises on distressed debt investing and claims trading and has significant experience in international finance transactions.



On 28 July 2017, Banco Popular Español S.A. announced that its sole shareholder, Banco Santander S.A., has approved a capital increase for the bank in the amount of EUR 6,880mn. The funds for the capital increase have been raised by way of a rights issue of Banco Santander, with the new shares being fully subscribed for by Santander’s existing shareholders. The new shares began trading on 31 July 2017. According to the notice, the purpose of the recapitalisation is to restore the levels of capital at Banco Popular so as to comply with the capital adequacy requirements of the European Central Bank. The capital injection will result in Banco Popular satisfying such requirements as it will have a CET1 ratio above 10.375% and Total Capital above 11.375%.

According to Reuters, Banco Popular is now in exclusive negotiations with Blackstone Group in relation the sale of a majority stake in its property portfolio, which is reported as having been valued at around EUR 30bn.


On 26 July 2017, Noble Group Limited announced that it could suffer a loss of as much as USD 1.8bn in its second quarter. The statement released by Noble confirmed that the company is now looking to offload the majority of its holdings outside of Asia as part of an “asset disposal programme”.

As reported in Bloomberg, Noble has also announced the USD 248mn sale of its gas-and-power unit, Noble Americas Gas & Power Corp, to rival commodities trader Mercuria Energy Group. The sale is intended to raise funds and demonstrate the group’s ability to repay its debt.

Following the company’s announcement, Moody’s Investors Service Inc. and S&P Global Ratings both issued statements which cited an elevated risk of default with respect to Noble’s existing loan obligations. As reported by Bloomberg, on 27 July 2017, Noble’s shares plunged by as much as 48.7%, almost halving its net assets.

According to the company, the asset disposal programme is anticipated to generate net proceeds of between USD 800mn and USD 1bn over the next two years. Noble is reported as having an estimated USD 2.1bn of debt maturing throughout 2017 and the first half of 2018.


On 13 July 2017, proceedings commenced in the Commercial Court of Seville to resolve the homologation of Abengoa S.A.’s Master Restructuring Agreement (“MRA”). According to Debtwire, the MRA provides for the restructuring of Abengoa’s debt through a combination of debt-for-equity capitalisations, new debt instruments and haircuts.

The proceedings concern the challenges being brought by various creditors in connection with the restructuring plan officially sanctioned by the Court in December 2016. As reported in Debtwire, there are nine appellant creditors, including surety providers, the US Export-Import Bank, and various minority bondholders. Whilst some creditors are seeking for the homologation of the MRA to be reversed, others are looking for their debt to be reclassified.

According to Reorg Research, defendants to the proceedings include five banks - Caixabank, Santander, Bankia, Banco Popular and Credit Agricole – and certain ‘new money’ lenders including, among others, Lajedosa Investments, DE Shaw and Potter Netherlands.

Key terms of the dispute include the validity of Abengoa restructuring plan and whether it places disproportionately large losses on certain creditors. For example, Haitong Investment Ireland, which holds swaps worth EUR 4.3mn, will see a 97% reduction in the value of its debt if the MRA is implemented. In addition, some creditors are seeking for their debts to be recognised as “commercial debtrather thanfinancial debt”, so as to avoid the discount applied to the latter category.

The trial ended on the 24 July 2017 and a ruling is expected in September 2017.


Italy has not, as yet, developed a national ‘bad bank’ (often referred to as an “Asset Management Company” or “AMC”). However, in a meeting held by the Italian Banking Association on 13 July 2017, the governor of the Bank of Italy, Ignazio Visco, outlined plans for the introduction of an Italian AMC, stating that such a measure “would potentially be useful” provided banks are able to “take up the scheme voluntarily”.

The discussions took place in the wake of the recent decision by the European Commission on the recapitalisation of Monte dei Paschi di Siena. As reported in the Financial Times, on 5 July 2017, the EU backed a five-year restructuring plan which will see the Italian State take over the world’s oldest lender. The plan includes the disposal of EUR 28.6bn of bad loans which will be sold to the government sponsored, privately funded recapitalisation fund, Atlante, for around 21% of their gross value. In addition, it is anticipated that a further 600 bank branches will be closed.

According to Reuters, at the end of the restructuring, the Italian State will have control over 70% of the bank’s capital, with an overall commitment of EUR 5.4bn.

However, Rome still faces increased pressure to reduce national exposure to NPLs. On 27 July 2017, the International Monetary Fund (“IMF”) called on the Italian government to take additional measures to resolve its vast debt burden, calling for “prompt actions to address problems in banks, with appropriate burden sharing involving banks’ shareholders and creditors”.

Reuters reported that it could take Italian banks up to ten years to reduce their level of NPLs to the European average.



On 20 July 2017, the Joint Administrators of Lehman Brothers International (Europe) (in administration) (“LBIE”) announced that they had issued an application to Court for directions, pursuant to paragraph 63 of Schedule B1 of the Insolvency Act 1986, in respect of a settlement of the Waterfall III proceedings. On 24 July 2017, a hearing was held before Mr. Justice Hildyard in respect of the application

A transcript from the hearing is available here.

The application relates to settlement arrangements agreed between various Lehman entities (including LBIE, Lehman Brothers Limited (“LBL”), LB Holdings Intermediate 2 Ltd (“LBHI2”), Lehman Brothers Holdings plc and Lehman Brothers Europe Limited). The respective administrators of LBHI2 and LBL have also filed applications with the High Court, seeking directions in relation to the proposed settlement.

The move to a consensual settlement reflects a recognition amongst the parties that LBIE is now highly unlikely to move into liquidation. As the Supreme Court clarified in its judgment in the “Waterfall I” proceedings, LBIE’s administrators are not able to prove for the prospective (contributory) liability of LBIE’s shareholders (which are LBL and LBHI2). This means LBIE cannot benefit from a contribution claim against its shareholders whilst it remains in administration. According to the Administrators, the parties have concluded that creditors are best served by reaching a settlement so that distributions can be made without further delay.

Further details regarding the commercial terms of the settlement are available here.



On 19 July 2017 the LMA announced the publication of revised forms of its English law investment grade primary documentation. The key amendments are intended to take account of the changes made to the LMA's leveraged documentation in November 2016 (to the extent considered appropriate). In addition, the Users Guide to LMA Finance Party Default and Market Disruption Clauses has been updated to remove the provisions relating to Alternative Reference Banks. Minor changes have also been made to the French law investment grade document in line with current law and market practice.

Click here to review the amended documents.


The LMA has launched template documents for use in Italian private placement transactions. The LMA project to develop the documents was commenced in response to demand from LMA members active in the Italian private placement market, who were keen to promote the development of this product as a viable financing tool in Italy. The Italian PP Documents are governed by Italian law and assume the transaction is unsecured and with an investment grade company as borrower/issuer.

Click here to view the documents.


[1]    This figure excludes liabilities owed by the Agrokor Group to Poslovni sistem Mercator d.d. and its subsidiaries.

[2]    Local banks and certain other companies with secured claims are entitled to subscribe for up to EUR 160mn of the New Facility whereas unsecured banks and members of the ad-hoc bondholders committee can participate up to EUR 170mn and EUR 150mn, respectively.

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