How did we do?

Firstly, how did our predictions of 2022 activity play out?

In last year’s review/preview we said: “Inflation and supply chain difficulties are no longer seen as transitory, and while pricing power appears strong for many companies others are less able to pass on costs and will struggle to avoid restructuring processes in 2022.”

We cited Boparan and Standard Profil as potential candidates (both managed to survive in 2022, but yet to thrive).

This time last year, most restructuring advisors interviewed by 9fin didn’t expect a big pick-up in 2022 deal activity. We cited “Huge liquidity buffers built up during the pandemic, readily available finance for riskier credits, and rising valuation multiples are boosting issuers and keeping the business doctors away.”

We were more successful in predicting the names that might struggle to refinance, correctly identifying Matalan, Olympic Entertainment, Corestate and Takko in our Blessed to be Stressed series. Admittedly, Raffinerie Heide escaped after a three standard deviation earnings event in 2022, repaying its bonds from cash on balance sheet. (If you are not a client you can read our (Not so) Blessed to be Stressed on Olympic Entertainment here).

German real estate was correctly identified by us as another key source of deals. Somewhat prophetically we said: “The interrelated nature of the market, concerns about whether transactions are at arm's-length, which may have artificially boosted valuations, and the use of aggressive accounting policies are cited. Even if these firms avoid flipping into restructuring in 2022, their ability to tap HY for cheap finance has probably gone for good.”

Adler Group, Corestate have gone into processes and Aggregate Holdings and Accentro are likely to follow, with Vivion back in the cross-hairs of short-sellers.

And more fraud: “We could also see the number of frauds increasing as management teams try to cover up their tracks.”

I’m not sure we would want to call out names explicitly to avoid a raft of lawyer letters, but we did see a number of short-seller reports and subsequent investigations and restatements.

Flock of White Swans

Nouriel Roubini has defined financial crises not as Black Swans (as Nassim Nicholas Taleb had famously called them), but as White Swans.

As Roubini writes: “According to Taleb, black swans are events that emerge unpredictably, like a tornado, from a fat-tailed statistical distribution. But I [Roubini] argued that financial crises, at least, are more like hurricanes: they are the predictable result of built-up economic and financial vulnerabilities and policy mistakes.”

Roubini adds we eventually end up at a tipping point – the “Minsky Moment” – when a boom and a bubble turn into a crash and a bust. “Such events are not about the ‘unknown unknowns,’ but rather the ‘known unknowns’.”

I remember a call with Steven Hunter, our CEO, in December 2021, when I ascribed a 30-35% chance of such a bust for levfin in our resource planning for 2022. Some of the early warnings signs were present, but many market participants were woefully unprepared for central bankers’ hawkishness on rates, the reversal of QE, and the subsequent impacts on risk assets.

In the first Friday Workout of 2022, I questioned how fund managers could deliver 2 and 20 with the ICE BofA EHY index at 2.9% and stressed names in the mid-to-high 90s. This seems crazily low in hindsight — and by mid-year 17% of AUM left the EHY market and primary had dried up. (If you are not a client, you can read this article here.)

Normalisation of interest rates was another White Swan. In early January, US 10-year yields were a mere 1.72% — I predicted they would be well into the 2s by end-June — they hit 3.5%. 10-year Bund yields went from -0.50% (yes negative) to 1.75%.

Another White Swan (I would argue not a Black Swan) was high energy prices. Yes, they were exacerbated by the Russia/Ukraine conflict, but we had seen a prelude in late 2001 and in January 2022, with gas prices up 400% on lower Russian gas flows.

The final White Swans were supply chain issues. These impacted businesses for longer than hoped as China stuck to its zero Covid policy, and semiconductor shortages continued.

All the above contributed to a worse than expected environment for risk assets than was expected at the turn of the year. None were arguably Black Swans, but in combination, they led to the overuse of ‘perfect storm’ and ‘unprecedented’ by management in numerous conference calls we’ve listened into in 2022.

Companies struggled to cope with the new environment, leading to a number of negative surprises, and a rush to renegotiate contracts to pass through input costs increases and efforts to reduce lag effects.

So how did all this play out? Let’s look at 2022 restructuring activity in greater detail.

Beds, Sheds, and Deads

The change in the funding environment started to become apparent early in the first quarter of 2022, with a number of HY deals either priced wider or pulled. Soft soundings for the stressed refinancing of Matalan, Raffinerie Heide and Takko floundered, some on pricing, some on lack of appetite and the weakness spilled over into the leveraged loan market too.

This was illustrated by BC Partner’s difficulties with Keter, the resin-based consumer goods business (including plastic sheds). After a failed IPO in December 2021, it tried to refinance its whole capital structure (including its October 2023 TLB), hoping Covid tailwinds would help get a deal away for a credit with a difficult past. Investors baulked at the skinny 425-450 bps margin, amid concerns over rising input prices, and the deal was eventually pulled.

As concerns over Russia’s intentions towards Ukraine intensified, the primary market became ever more difficult, and when the invasion happened in late February, the immediate focus was on those names directly affected — our screeners correctly identified Frigoglass, Oriflame, HSE24 and Hilding Anders as the key candidates. As sanctions were imposed on individuals, this list was expanded to include DIA and Holland & Barrett, as LetterOne’s principal shareholder Mikhail Fridman was one of the oligarchs targeted.

Hilding Anders, the Swedish bed and mattress maker, was worst affected, as 51% of its 2021 EBITDA came from Russia. Its loans traded down to 51 by end-March, with a covenant breach seen as inevitable, with significant cost inflation to boot. (The restructuring proposal landed in July, with sponsor KKR securing a debt extension after promising a series of asset sales.)

The first quarter also saw a few negative news shocks, most notably the French care home operator Orpea after the release of ‘The Gravediggers’ by Victor Castanet. The book exposed mistreatment of patients, amid allegations of criminality by its bosses. The public prosecutor launched a investigation with potential manslaughter charges levied against former managers. Other care home operators (once darlings of the leveraged loan market) came under pressure. The situation at Orpea worsened throughout the year — and we will return to it later in this review.

As one investor told a 9fin journalist in mid-March, all his problem positions were “beds, sheds and deads.”

Not a Schur Thing

One of the most striking situations in the first quarter was the accounting irregularities and alleged fraud at Schur Flexibles, whose loans faced a prospect of a default before their first interest payment was due in March.

The term loans for the Austria-based plastic packaging firm dived in February by over 25 points after lenders learned Alvarez and Marsal (A&M) had been brought in to investigate compliance and accounting irregularities, following the departures of the former CEO and CFO in December.

Lenders were told that restated EBITDA was sharply lower for 2021, reduced by accounting adjustments of €41.2m, from around €90m marketed in the 2020 sale process. As well as the accounting misstatements, there was an investigation into misappropriation of funds by management, including inappropriate bonus payments, potential fraudulent invoices, inflated consultancy fees with kickbacks, and leases for two properties in Mayfair for the CEO and CFO.

On 19 April, Schur presented a lender update and floated a plan under which the debt would be bifurcated and reinstated into Opco/Holdco debt (36c and 64c respectively). Existing lenders (TLB and Supplier Credit Facility (SCF) providers) were asked to provide €60m of new money.

Sponsors B&C Group (which acquired a 80% stake in September 2021 from incumbent sponsor Lindsay Goldberg for €900m) walked away, after initially providing shareholder loans to fund the business through to early May.

But a lender group led by Apollo pushed for a deeper haircut and a simple post restructuring cap structure, offering substantially more new money (€150m). If the company hits its turnaround targets, estimated recoveries are 85-110% for lenders backstopping new money, 82-104% for a pro-rata subscriber and 47-60% for an existing lender who decides not to provide new money.

For more details our Restructuring QT is here. (If you are not a client, you can request a copy of the Restructuring QuickTake here.)

Outside of Schur, few restructuring proposals landed in the second quarter. Our main focus was on company first quarter earnings and their pricing power — the ability to pass through sharply rising costs, and how they would cope with energy disruption and continuing supply chain issues.

Names that entered into our watchlist included Kloeckner Pentaplast, Pro-Gest, Saipem, Lycra, Diebold Nixdorf and Atalian in bonds; PGS, Cerelia, Vue, and Cineworld in loans. (If you are not a client, you can request a copy of the Vue Restructuring QuickTake here.)

Some with Russian exposure moved quickly to mitigate the effects. Veon separated the financing of its Vimplecom Russian subsidiary, novating RUB 90bn ($1.07bn) of loans from Sberbank and Alfa Bank. Frigoglass switched some production from its Russian site as part of plans to “disengage with our attachment with Russia” but with its fire damaged Romanian plant back in operation in H1 23 advisors were appointed to “aid liquidity and address capital structure issues.”

Mikhail Fridman resigned from his positions in LetterOne, but this wasn’t enough to provide comfort for the paying agent for the Holland & Barrett who delayed payments to lenders for over a week in April. The UK-based health foods group, subsequently offered a discounted buyback auction for its term loans, securing 99.3% lender support, paying 75 plus a 4.75% early bird fee.

Auditing the Auditors

While we waited for developments elsewhere, the German real estate sector kept us at 9fin extremely busy during the first half. We weren’t the only ones struggling with some of the numbers, the auditors were having trouble too, mindful of prior allegations from short-sellers.

Adler Group had sought to refute allegations made by Viceroy Research last October over related-party transactions, accounting and valuation issues. Two large portfolio sales above book value allayed some fears, but the respite was short-lived as auditors KPMG said they were unable to fully audit the FY 21 accounts, issuing a disclaimer of opinion after delaying their release. This led to a back and forth if this satisfied the bondholder reporting requirements or not.

The auditor’s Luxembourg branch a week earlier had issued its forensic report into the Viceroy allegations. In their report, the authors complained that a number of documents were withheld due to legal privilege, and in many instances they said they were unable to refute the allegations due to a lack of information.

KPMG’s forensic report identified deficiencies in the process and the handling of a number of third-party deals, most notably the Gerresheim transaction, one of the main development portfolio sales highlighted in Viceroy’s report. A worst-case scenario was a €600m to €700m adjustment said Stefan Kirsten, the new Chairman who personally handled the interactions with KPMG and appeared to stake his reputation on rebuilding investor trust.

Despite Kirsten’s protestations that the forensic investigation was “definitely closed” after finding “no systematic fraudulent and looting transactions with related parties,” the subsequent conference call led to more responses than answers. Despite his reassurances that their differences with KPMG could be resolved, just an hour after the call ended, KPMG abruptly resigned.

By August, no replacement auditor had been found. As we outlined in our Q2 earnings review, faced with an ongoing BaFin investigation and with LEG Immoblien deciding against buying the rest of its BCP portfolio, Adler “faces significant difficulties in meeting its 2023 maturities.”

On 1 September it sought shareholder approval to sell 22,301 apartments and commercial units - substantially all of its yielding assets - we said “it begs the question, is Adler in run-off?”

As the German real estate market froze in the third quarter, it was clear that Adler would be unable to raise funds via property sales, with Kirsten saying that all it had received were a number of ‘indecent proposals’. If that wasn’t all, in mid-November, German regulator BaFin had said that Adler had overstated its 2019 revenues by €3.9bn and earnings by €543m.

Adler, however, said it was in advanced negotiations with bondholders to amend bond terms and their provision of secured debt financing. The proposal which landed in our inboxes at 8pm on 25 November is summarised later in our 2022 review.

2022 was the year that a man came in from the cold for one last dangerous assignment. (If you are not a client, you can read this issue of Friday Workout here.) Cevdet Caner, accused by Viceroy of running Aggregate (and also Adler) from the shadows for years was sitting under the bright lights of a Berlin press conference in plain sight in early July.

Caner said he was invited to buy a 20% stake in Aggregate by the owner and his friend of over 20 years Gunther Walcher. While he greatly enjoyed working as an independent advisor and dealmaker, “I will now gladly move from the passenger seat into the driver's seat for one simple reason — I decided to become CEO to make a difference.”

We can create enormous value for all, including society, he said in a rambling speech which at times challenged his inner Elon. “However, this is a hyper competitive industry, ladies, and gentlemen, in which most of the players know each other personally whenever someone wins. And luckily, most of the time I have been on the winning side, [and] someone else loses.”

But despite the bluster, it is clear that Aggregate will struggle to be one of the winners.

Over the past 18 months it has been forced to enter into a series of increasingly desperate transactions to raise cash. In February Vonovia took control of a 20.5% Adler stake held by Aggregate after a missed payment (Adler’s Chairman Stefan Kirsten was Vonovia CFO when the margin loan was struck). Several of its trophy assets such as Quartier Heidestrasse were put on the block to meet upcoming maturities, with Vivion able to use its Aggregate bonds as payment.

Arguably, holders of VIC Properties convertibles (its Portuguese subsidiary) have come out best in their bout with the company. After the €250m converts exercised their put option in May, the original 28 May 2022 redemption date was extended to 28 September/28 December 2022 following negotiations with holders. The redemption amount increased to a staggering €372.4m by 31 December 2022. The redemption date was further extended to 28 February 2023 in September and subsequently to end-March. VIC Properties bondholders have also managed to secured additional security at Aggregate level, and will likely be first in the queue for disposal proceeds.

With its November 2025 SUNs indicated in the high 30s, it will be hard to see how Aggregate can avoid a restructuring and impairment in 2023, despite a reported LTV of 63.5%.

Corestate audited FY 21 nos were delayed in late April, and with auditors forcing them to restate, its bonds dived into the 30s during May. Management had faced disgruntled investors on several occasions, facing questions on sudden departures of senior managers, goodwill write-downs and risk provisions which halved FY 21 EBITDA.

We had flagged our concerns over the business model for the German RE operator, which used mezzanine funds (subsequently gated) to provide bridge loans to developers. Concerned about links to Adler and Aggregate (rumoured to be its largest developer customers), it lost a substantial amount of AUM in the first half as its customers left in droves. There was precious little time to rebuild trust as debt maturities loomed in November, and in early 2023.

In August, we outlined that after disastrous Q2 results Corestate had finally got real about its long and arduous descent. 9fin’s Denitsa Stoyanova said: “However, it will be a tall order at this stage to convince bondholders to lend into a business with substantial doubts over future earnings potential and a funding model which may be irreparably broken…Corestate will have to be run for cash while it seeks to convince bondholders that it still has a place in the German RE lending landscape and can still fund itself competitively.”

WIth just weeks to go until the November 2022 convertible bond payment, Stavros Efremidis the new CEO and 10% shareholder ,sought to face down bondholders, as he tabled a plan funded by himself and a group of third-party investors. A 80% haircut was proposed, with just €33m of proceeds from asset disposals and 50% upside from repaid bridge loans and mezz fund payments offered in return, with the shareholders putting in €45m of new money.

The bondholders had countered with a 80% write-off and taking 81.25% of the group equity with €25m of new money. They refused to agree to the company plan, despite threats of insolvency, saying they would vote against it in a bondholder meeting held on the same day as the maturity of its November 2022 converts.

Just as we thought that a messy Luxembourg insolvency was inevitable (returns were projected in the mid-teens), in a surprise twist, the board sided with the bondholder proposal, with the deal agreed in a series of shareholder and bond meetings.

Other German RE names have suffered from the fall-out from Adler, Aggregate and Corestate in 2022. Most notably developer SIGNA Development, (with a chequered ownership past) but also larger players such as DIC Asset, Peach Properties and Demire, who will be praying that other sources of funding remain open as many have upcoming maturities.

And just last week, the accounts of another German RE company came under scrutiny.

Vivion, which sold the Fürst development project in Berlin to Aggregate for an impressive €1.2bn in May 2021, became subject of short-seller attack by Muddy Waters. The Muddy Waters report questions shareholder loans to the company, value extraction, property valuations, related party transactions……and whether the company’s reported vacancy rates stack up, especially given the heavy presence of a co-working anchor tenant “rent24” which Muddy Waters argues is a related party.

Flipping Flops

By mid-year, as the macro picture worsened, European levfin debt had sold off sharply. The iTraxx Crossover was above 600 bps (from 250 bps on 2 Jan) with 783 bonds from 360 EHY issuers (out of 1,493 and 553 we track) trading below 90, the traditional measure of distress.

But most of the price moves were due to duration and convexity after government bond yields soared. This prompted us to produce our popular Top of Flops series which looked at other metrics such as spread to worst to better identify stress and distress. (If you are not a client, you can see an example of our Top of the Flops series here).

In mid-July, 318 bonds from 199 issues were at a spread-to-worst of over 8%, our measure of stress/distress, more than one-in-five (21.3%) of all EHY issues. The number of stressed deals was double that from mid-June, and compared to just 49 stressed issuers in mid-March.

The sell-off wasn’t just limited to fixed-rate bonds, we had 297 loans indicated below 92 (our indicator of stress/distress) which was 24.7% of the 1,201 tranches we tracked.

Among the biggest loan fallers were French Food companies, such as Cerelia, Ecotone, Biscuit International, Prosol and Labeyrie, hit by surges in vegetable oil and wheat prices. France limits price negotiations with food producers. Normally, food retailers are allowed to negotiate with food producers only once per year in February — meaning many French companies locked prices in before they spiralled following the invasion of Ukraine.

Just a month later (mid-August) we had seen a sharp rally in risk assets, with US stocks and HY spreads retracing over 50% of their 2022 sell-off. The prevailing market view was inflation had peaked, recession was inevitable and central banks would be forced to pivot.

European HY and Lev Loans had lagged their transatlantic counterparts, but a massive 602 EHY bonds from 202 issuers were up over 5% in a month, with 141 and 86 up over 10%. The move in loan prices was even more dramatic, with the number of names trading below 92 halving.

Just as bankers were preparing for a reopening of levfin primary, markets woke up to the spectre of fiscal sustainability. On 23 September, a Kami-Kwawsi attack on the UK fiscal account created panic amongst markets, with the Bank of England stepping in as buyer of last resort to stabilise yields and stave off a pension fund collapse.

The iTraxx Crossover neared 700 bps and closed end-September at 641 bps, up from 509 bps at end-July. German five-year Bund yields rose from 1.5% to 2.10% and UK five-year yields moved from 2.8% at end-August to 4.32%. As a result, the number of EHY bonds trading below 90 was now 876 from 387 issuers, higher than the 783 seen at the previous low point around end-June.

On a spread basis, the moves were more muted, failing to revisit the extreme stress levels seen in late June. By end September, most second quarter earnings had been released, and on the whole were better than expected, with sharp rallies for beaten-up names such as Upfield Flora and PDA which successfully managed to pass through hefty price increases.

There was some restructuring activity however, with Cineworld following Vue into restructuring, after filing for US Chapter 11 on 7 September. The US process was popular during the quarter, with Lumileds filing on 29 August, and SAS on 5 July.

Conversely, the restructurings for Imagina and Pierre & Vacances became effective in Q3.

Santa A&E, hurry, hurry, with a proposal for me

But the lady was for turning. The shortest ever occupant of Number 10 Downing Street was sunk by a fiscal iceberg and her newly appointed chancellor reversing most of her growth agenda. Markets were relieved by the about turn and the newfound fiscal responsibility, and by end-October, were setting themselves up for yet another pivot with government and HY bond yields retracing most of their spikes from the prior month.

But the divergence in performance for leveraged finance was becoming clearer, with the number of stressed/distressed loans and bonds remaining elevated despite the sharp improvement in overall market sentiment.

The rally in risk assets intensified in November, with the Crossover ending the month at around 450 bps, 200 bps tighter than end-September. This time around, we did see some bargain hunters with the number of stressed bond and loan issuers dropping markedly.

Primary markets remained tough however, with many borrowers still having to offer double-digits yield to get their deals away, even if they are able to bear the increased interest costs. This has led to expectations of a raft of amend-and-extend (A&E requests) with one investor telling 9fin he expected up to 10-15 deals to land by the first quarter.

Stada was the first to come to market (with an interesting eight point cash payment) with deals seen later for NewDay (bonds) and Altice and Sebia in loans.

But not all requests were entirely friendly, with coercive elements for Diebold Nixdorf — which obtained $400m of new super senior term loans and a $250m ABL — with an A&E offered to its 2024 term loans and SUNs. Eagled-eyed observers may have noticed that the grace period for bond interest for the stub notes was changed by majority consent — to one day before maturity!

Keter’s A&E request landed around the same time, a partial repayment (funded by new debt, including a second lien and just €50m from sponsor BCP) alongside a two-year extension and 100 bps margin uplift. But if the deal didn’t meet 100% approval, key protections for dissenting lenders would be removed by 80% of lenders’ consent, by stripping covenants and security. Those left behind still would have a temporal seniority claim, but will sit behind other lenders in the event of a future restructuring.

But the Keter proposal failed to get over the line, partly we understand as some CLOs outside their investment period were unable to consent. Our colleagues at Reorg suggested it would come back via an English Scheme (75% of those voting and majority in number could bind in the minority). It has yet to appear.

Despite an improvement in overall market sentiment and a better than expected macro picture — input costs, most notably gas, are much lower than predicted — we have seen a surge in restructuring activity in the fourth quarter.

Plans have emerged for Metalcorp, Matalan (sale process) Frigoglass, Adler Group, Food Delivery Brands, (sale process) Frigoglass, Adler Group, Food Delivery Brands, , Adler Group, Food Delivery Brands, , Orpea  and Veon.

Developments are expected soon at Takko, GenesisCare, Keter, Covis Pharma, Hurtigruten, McLaren, Technicolor Creative Solutions, Accentro and VIC Properties.

Loss carry-forwards

The two largest restructuring’s announced in the fourth quarter — Orpea and Adler Group — which have inflicted hefty losses already on creditors — will carry forward into early 2023.

Unlike Adler, which has already secured €937.5m of super-senior funding from a steering committee of Adler Group bondholders, Orpea could face an uphill challenge to find €1.2bn to €1.5bn of new money. As myself, Denitsa Stoyanova and Bianca Boorer outlined in our piece of 25 November there are several moving parts, several stakeholders to deal with, and little time.

Senior secured lenders — whose support is needed to implement a cross-class cramdown via Sauvegarde Accélérée (the first high profile use of the new tool) — must agree to amend debt terms and extend maturities which result in a NPV haircut, and provide covenant waivers.

A group of Schuldschein lenders argue that their German law debt (a substantial portion of the unsecured creditor group which is being fully equitised), is not subject to French law and therefore cannot be compromised.

Orpea creditors may also be miffed that subsidiary debt (including some unsecured) is left untouched, as are leases with landlords not being asked to share the pain.

There is also the question of valuation, with expected sharp drops in real estate revaluations reducing asset coverage. Assuming that Orpea can achieve a 9-10x multiple and hit its ambitious FY 25 targets we get to a €7.45bn EV compared to €5.699bn of post-restructure debt. But if we use the depressed valuation of its listed peer Korian, the EV just about covers the debt figure!

There is less immediate risk to the Adler Group rescue financing plan, with a steering committee of six holders providing €937.5m of secured debt financing commitments paying 12.5% PIK due in June 2025, with contingent value rights to 25% of the equity. This should provide enough runway until 2025, allowing time to dispose of properties and to fund capex.

Under its planned capital reorganisation, the 2023 and 2024 bond maturities at its Adler Real Estate subsidiary will be repaid from the new money, removing opposition from a K&E-led group which had earlier complained about value leakage and threatened legal action.

The consent solicitation (to amend the notes) has been launched with bondholder meetings on 17-19 December. But as Bianca Boorer reported there is some opposition from a group of 2029 holders led by SVP who are unhappy with favourable treatment being offered to 2024 holders (whose claims are being elevated) and are set to vote against. With the company set to use an alternative implementation plan (Starug or English Scheme) we assume the 2029s could object in court to being lumped together with other Adler Group holders and having their vote diluted.

Legal-eases

While we whet our appetite in anticipation of possible legal challenges for Orpea and Adler in 2023, in 2022 legal developments and case precedents were much less prevalent than in the prior year.

After a number of landmark cases in 2021, related to the recognition of UK judgments post-Brexit, and case law for then-new UK Restructuring Plan, there were fewer high profile situations going through the English courts this year. Our 9fin Educational on UK processes is here. (If you are not a client, you can read this 9fin Educational here).

In brief, the key cases were:

ED&F Mann: The first UK Restructuring Plan to amend a company’s articles of association and shareholders agreement allowing $300m of new money to finance trading and refinance $1.5BN of cross-border debt. Company advisors Freshfields have a good summary here.

Smile Telecoms: The first Restructuring Plan to disenfranchise out-of-the-money stakeholders and compromise shareholders in a foreign company. K&E’s summary is here.

Houst Ltd: The first SME UK Restructuring Plan, in which HMRC was bound as a dissenting class despite being treated differently in priority than under the relevant alternative to the plan — a pre-pack administration. At the extreme it might even be seen as the first cram-up. More here

In July, two years on from the introduction of the UK Restructuring Plan, the UK Insolvency Service produced its interim report, in which they said the RP was a “fantastic initiative” and “particularly useful.” But it also said RPs are too costly and time consuming, especially for SMEs, with fees often spiralling into seven figures. In addition it is currently too costly to challenge, deterring actions from dissenting creditors, and requires greater disclosure and transparency.

Most notably, the Insolvency Service has suggested widening the scope and reach of Plans, to expressly say that they have extra-territorial effect. This would reduce costs and uncertainty.

Post-Brexit, the UK launched a public consultation to extend recognition and enforcement of insolvency-related judgments and/or adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Enterprise Group insolvency. According to a Kirkland & Ellis note  it “provides tools to manage and co-ordinate insolvencies within corporate groups, while respecting that each company remains a separate legal entity.”

For more on the above and more, see our piece — What next for UK Restructuring Processes

Outside the UK, Modern Land gave a helpful clarification from the US Bankruptcy Court as to recognition and reach of foreign proceedings in Chapter 15 (more specifically for Cayman Islands schemes).

In Europe, a number of tweaks to existing regimes came into force this year, mostly to adhere to the EU minimum standards regime.

As Bianca Boorer wrote in June, French restructuring practitioners welcome new reforms, but await the first test. Pierre et Vacances was the first large business to classify creditors under the new reforms, but this was a consensual deal with creditors and negotiated prior to the introduction of the reforms. Being France, some wrinkles remain, most notably on the cramming down of shareholders. (This article is available to read here).

In Germany, the focus was on temporary relaxation of insolvency rules to help companies stay afloat, when they are fundamentally sound but are struggling with high energy costs. On 9 September 2022, Germany's justice minister Marco Buschmann said he was planning a temporary relaxation of insolvency rules, reducing the look forward test from 12 months to four months. (This article is also available to read here).

According to the German insolvency law, managing directors of companies are required to file for insolvency based on illiquidity (if unable to pay its debts when they fall due) or an over-indebtedness test (if the company's assets are not sufficient to cover the company's liabilities).

Changes to Spanish insolvency law came into force this summer. On 30 June the moratorium on creditor enforcement (as part of the Covid measures) ended, as did the availability of SEPI funds. From 1 July, creditors to Spanish companies will be able to impose a restructuring plan on other creditors and shareholders — the so-called cross-class cram down, with other new features included such as protections on new money provision.

According to Herbert Smith Freehills, the regime broadens the scope for restructuring mechanisms “stablishing a system where it is possible to resort to this mechanism earlier (without having to await current or imminent insolvency) and extending restructuring to more types of creditors (not only financial creditors).”

9fin Restructuring

Our distressed/restructuring team aims to provide a varied mix of content, including deep dives, bespoke reports, earnings previews/reviews, and bitesize reports on fast moving situations.

During 2022, in anticipation of a pick-up in activity we bolstered our reporting and distressed analyst team. We also leant on the expertise and assistance from the wider 9fin team to cover stressed company earnings and produce a series of bespoke reports, such as Blessed to be Stressed while increasing the number of Stressed and Restructuring QuickTakes.

The Top of the Flops report (first released in mid-June) outlines how 9fin’s bond and loan screeners to locate fresh opportunities. Each monthly report focuses on new entrants, biggest movers and the latest events and the news flow behind them.

In September, we first published the Watching the Defectives report, which outlines how 9fin’s restructuring reporters and distressed analysts choose which names to spend attention on. (If you are not a client, you can request a copy of Watching the Defectives here).

Our team of dedicated distressed analysts and restructuring reporters meet every week to add/remove names from 9fin’s Watchlist, a manageable list of 20-25 names of potential restructuring and A&E candidates, whittled down from an initial list of 250 plus bonds/loans.

In October, to complement our other bespoke reports, we released our Restructuring Tracker which covered major ongoing, expected and completed restructurings in the European HY universe since August 2020. You can review restructuring timelines and upcoming milestones, access key information, such as pre- and post-restructuring debt amounts, creditors and advisors, and links to all our articles, releases, documents and QuickTakes.

For 2023, we aim to boost the team further as the number of deals increases further, and are set to make yet more improvements to our offering. Watch this space for developments.

The 9fin team would like to take the opportunity to thank all our subscribers for their fantastic feedback (positive and negative) which has been invaluable in making improvements and developing our Restructuring Tracker. Keep it coming in 2023.

Part two seeks to provide some insight into 2023, following a series of calls with restructuring professionals and distressed funds. It will be published later this week. If you would like to request a copy of this report, please complete your details here.

If you would like a copy of any of the other articles mentioned in this report, please email team@9fin.com.