Chris Howard, Head of S&C’s European Restructuring Practice, discussed a recent return to more robust and stringent debt enforcements with Bloomberg. After the financial shocks beginning in 2020 related to Covid-19, Russia’s invasion of Ukraine, and the rise in interest rates, creditors have been losing patience with delinquent European “zombie” borrowers and are beginning to exercise their enforcement rights much more assertively. Chris notes, however, that in some situations, such as deals with multiple tranches or investors, the debt structure may be less suitable for enforcement. In such a scenario a solution is for creditors to offer borrowers a “last chance.”
One such “last chance” framework involves creditors conditionally offering the sponsor relief under an accelerated M&A process via a so-called “euthanasia sale,” whereby the sponsor agrees to commence a pre-agreed M&A sale process with clear milestones to be met within a specified period, in exchange for temporary enforcement relief. However, “[i]f the sponsor is seeking to retain a free option on the outcome by stalling, no new sponsor capital is forthcoming and there is deteriorating trading performance – then creditors have been less patient and have been more inclined to give both the sponsor and the portfolio company a whack around the head,” said Chris.
Read: “Luxury Hotels, Football Clubs Targeted as Creditors Get Tough”