Trade Alert - March 2014, Issue 3


Achtung! Risks for Loan Traders

Banking Licence Required - The conduct of certain banking and financial services related activities within Germany requires a banking license pursuant to Section 32 of the German Banking Act (Gesetz über das Kreditwesen, "KWG"). The supervisory body responsible for granting bank licenses is the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin"). Breach of the relevant provisions under KWG may constitute a criminal offence and punishable on indictment by a term of up to five years of imprisonment and/or a fine. The application of German banking licence regulations is generally untested, and it is recommended to seek advice on a case-by-case basis, particularly when acquiring or disposing of a revolving loan, any loan which is being or may be restructured or any loan which is subject to amendments, such as the extension of the maturity date or a change in the interest payment date.

Passive freedom to provide services. Possible exemptions - It may be possible for a secondary loan purchase and sale transaction to fall outside of the scope of the German banking licence requirements, where:

  • the German borrower initiates the contact with a non-German lender within the European Union, thereby benefitting from the EU passive freedom to provide services; or
  • the buyer acquires a fully funded term loan by way of assignment.
Equitable Subordination - Under German law, financial support provided by a shareholder to its corporation may become subject to equitable subordination. The rights of the shareholder would be subordinated to the claims of other creditors in the event of the Company's insolvency. This doctrine applies to all German corporations and could even apply to foreign corporations, such as an English limited liability company, if German insolvency proceedings are initiated in relation to the English Ltd. As such we recommend seeking additional representations from the Seller to ensure that a shareholder loan has not been granted. Furthermore, the security package provided for a loan should also be reviewed by local counsel in order to avoid that loans are regarded as subordinated due to extensive security rights for the creditors, e.g. in case of share pledges.
Possible exemptions
  • Restructuring privilege - exempts a shareholder loan if shares are acquired in an attempt to restructure the company. This only applies to share acquisitions during an insolvency or imminent insolvency.
  • Minor, non-managing shareholder:
  • For a GmbH, the loan is not regarded as subordinated if it has been provided by a shareholder who holds a maximum of 10% of the share capital and is a non-managing director of such company.
  • For a German AG, the minimum shareholding must also be more than 10% for the loan to be subordinated.
Special Note:
Thanks to Michael Neises at Heuking Kühn Lüer Wojtek for his assistance with the German Jurisdiction Update.


Spanish Insolvency Law Reform

The Spanish Insolvency Act has seen its most material amendment come into effect on 9th March 2014 by Royal Decree - Law 4/2014 . The law now provides for a more flexible system and reduces equity leverage. Under the new law, it is now possible for a Refinancing Agreement  (which satisfies the legal requirements for such agreement) to be court approved in a Court Homologation process which will bind dissenting creditors. In practice, 75% of Syndicated Loan creditors can now bind the remaining 25%.              

There is a two year hardening period under Spanish law where any transaction which can be detrimental to the Company can be clawed back. The amendment provides a new safe harbour for a Refinancing Agreement to be exempt from the risk of claw back, and other acts will also be exempt, provided the transaction benefits the Company. Debt for equity swaps in restructurings are now specified to be free from equitable subordination risk and new money financing will have super senior priority status for two years from entry into force of the new law.  It is unclear how these new loans will rank in priority however if the Company files for insolvency in year three. 

This new creditor friendly legal framework is likely to enhance the appeal of the Spanish loan market to distressed investors even further than before.

French Insolvency Law Reform

(Ordonnance no. 2014-326) was published in the French official journal on 14 March 2014. The new rules apply to all proceedings that open on or after 1 July 2014 but will have an influence on current loan negotiations.  It redresses the checks and balances in place by creating a double-edged sword over the heads of shareholders by reallocating rights to lenders and by enhancing lender led restructurings.
Significant change: new rights are now given to lenders to propose a counter restructuring plan where restructuring   proceedings  (safeguard or receivership (redressement judiciaire)) are opened. Until now, the debtor was not obliged to put creditors' restructuring counterproposals to a vote leaving creditors with no other choice than agreeing with the debtor's plan or forcing liquidation.  
Post reform, members of the lenders' committee and suppliers' committee will be able to prepare their own restructuring plans and submit them to other creditors for approval. The lenders' committee includes either senior or subordinated lenders, but excludes bondholders who vote in a separate committee. Alternative plans will require the approval of 66.67% by value of lenders and suppliers who attend and vote in each committee, as well as the approval of 66.67% of the bondholders committee.  Unlike senior lenders, bondholders are not authorized under the new statute to present an alternative restructuring plan. However,  given the lenders' restructuring plan requires bondholders' consent, their interests must be taken into consideration by the lenders under the alternative proposal.

In the event of a debt-for-equity swap organized under a safeguard or redressement judiciaire, the receiver is now authorized by Court to convene a shareholders' meeting to vote subsequent changes to the by-laws. Under new Article L. 626-16-1 of the French Commercial Code, a simple majority of shareholders' approval will be needed instead of the two third statutory majority. In the event of a debt-for-equity swap organized under receivership (redressement judiciaire), the receiver will also be allowed to ask competent judges to appoint a third-party to vote in place of the current shareholders should they refuse to vote in favour of the required changes to by-laws and where the company's equity position shows disproportionate losses.

Under the new statute, any creditor will also be entitled to require the dismissal of the Court-appointee should the former consider that the latter does not act properly and independently.

Notable Transactions


IVG – IVG's creditors and shareholders approved the company's insolvency plan proceedings on 20 March 2014. The insolvency plan now only requires confirmation by the insolvency court. The implementation of the plan, which is scheduled for mid-2014, will lead to a comprehensive debt reduction and recapitalisation of the company and establish a solid equity base.

2 Solar World - the listed German alternative energy company has recently reduced its financial liabilities from about EUR 1 billion to EUR 427 million following completion of its financial restructuring on 24 February 2014, converting the remaining outstanding debt into two new secured bonds with terms of five years. The restructuring operation is planned to be fully implemented by 30 June 2016, reducing the company's total amount of debt to approximately EUR 300 million.
3 ATU - The A.T.U. group, market leader in German car repair services, have undergone a financial restructuring of approximately EUR 600 million with senior bondholders converting most of the debt into group equity and further providing a fresh money investment in excess of EUR 100 million. The Cadwalader financial restructuring team, led by Yushan Ng and Holly Neavill, represented Centerbridge Partners LP in connection with the restructuring.
4 APCOA Parking AG - Europe's biggest parking management firm, applied to a UK court for a scheme of arrangement to extend its amortisation payments and maturities by three months while it is negotiating a debt restructuring plan which has to take place before the company's EUR 660 million of buyout loans mature in April 2014. The sanction hearing will take place on 14 April 2014.

Deal Pipeline

1 Airwave - the UK digital and radio communications group obtained the sanction of the court on 27 March 2014 to its proposed scheme of arrangement. The scheme will push out maturity and amend economics in return for tighter corporate governance.
2 Dutch Real Estate Portfolios – Debtwire reported in March that Lone Star is in exclusive talks to buy Dutch offices loan portfolio from HSH Nordbank valued at approximately GBP 100M. AXA REIM bought the portfolio of 58 offices in 2007 for EUR 290M. The portfolio is in the hands of a court-appointed administrator who has approved a workout plan involving a sale of the individual assets. A portfolio sale is underway to dispose of the remaining properties.
3 Autobar – The company's private equity owner, CVC Capital Partners, has approached the group’s largest lenders to engage in discussions as the company’s performance continues to deteriorate and with an increasing risk of covenant breach in March. The deal features a white list, meaning that transfers outside the list are not permitted unless approved by the sponsor. A lender presentation will take place on 31 March 2014.
4 Vivarte – The company has entered into a four month conciliation process (concerning the group's financial holdings only) with its financial creditors in order to renegotiate its LBO debt. The second part of the independent business review will be released at a lender meeting on 8 April 2014 and provide a preliminary estimate of the level of sustainable debt for the business. The debt restructuring will likely involve a debt-for-equity swap and a new money facility. Based on new forecasts, the company should achieve EUR 230m EBITDA in its FY14 ending in August.


Team Member
Tawnee Ebbs   is an associate in Cadwalader's Financial Restructuring Department and specialises in distressed debt and claims trading. She frequently represents investment funds, brokerage firms, hedge funds and other financial institutions in connection with the acquisition and sale of syndicated bank loans, debt instruments, bond claims, deposit related trades and distressed assets, in particular insolvency claims within Europe, the United States and Asia.

Contact: Tawnee Ebbs
+44 (0) 20 7170 8738

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