Restructuring Differences in the U.S. and European Financial Markets
This post was also written by Abbey Mansfield, Phil Slater and Ben Wulwik.
Recent uncertainty in the European financial markets has led many European borrowers to look to the U.S. debt markets for liquidity. However, U.S. and European debt markets have developed very different market terms and documentation practices. Our two prior blog posts in this three-part series summarized differences in the basics of structuring and documenting European borrower debt in the U.S. markets, and particular terms of that debt.
This post highlights differences in approaches to restructuring that may surprise European borrowers, and that lenders syndicating the debt of European borrowers should be aware of to best manage borrower expectations.
- U.S.: Restructurings often occur in court through a “chapter 11” case under the U.S. Bankruptcy Code with a focus on delivering a restructured operating business. The court will impose an automatic stay that provides a standstill applicable to all creditors of the company.
- Europe: Restructurings typically occur outside of court and often with the appointment of an administrator, and the focus is on the terms of contracts (particularly intercreditor deeds, discussed below), which will bind the parties thereto.
- U.S.: Because of the in-court chapter 11 nature of restructuring proceedings, most intercreditor agreements only govern lien subordination, with any contractual payment subordination provisions (such as a separate subordination agreement) to be included in financing documents directly.
- Europe: Given the out-of-court nature of the restructuring process, intercreditor deeds regulate both payment and lien subordination among creditors.
- U.S.: To preserve senior creditor control in the chapter 11 proceeding, junior creditors provided waivers of (i) uses of cash collateral, (ii) sale of secured assets, (iii) relief of the automatic stay and (iv) plans of reorganization.
- Europe: U.S.-style waiver provisions are not required, given that restructurings typically occur outside of court.