Secondary trading and loan portfolio sales

Background

Distressed companies usually see their debt being traded on the secondary market at prices below par/face value.

The original lenders of record (eg banks or lenders which originated the loan) may be keen to sell their debt exposure on in the secondary market to reduce their exposure to a particular debtor or sector (see Practice Note: Secondary trading of distressed debts).

In complex restructurings, excessive debt trading can make negotiations with key creditors difficult if they are constantly changing in a 'revolving door' scenario.

The Loan Market Association (LMA) (Europe's trade association for the syndicated loan markets) has made significant progress in standardising documentation and processes.

Secondary debt trader tactics

Typical secondary debt trader tactics include:

•
seeking an enhanced yield
•
seeking a capital gain
•
a 'loan to own' strategy
•
competitor insight
•
blocking majorities

In some cases, the borrower or one of its affiliates may seek to purchase the loan through a debt buy back. For further details, see Practice Note: Debt buy-backs.

The proper law doctrine (see Practice Note: The Gibbs rule) provides

To view the latest version of this document and thousands of others like it, sign-in with LexisNexis or register for a free trial.

TAKE A FREE TRIAL

Latest Restructuring & Insolvency News

HMCTS announces new draft probate application management system on MyHMCTS

HM Courts and Tribunals Service (HMCTS) has announced changes to the management of draft probate applications on MyHMCTS, effective from 11 March 2025. Under the new system, users will receive email notifications when inactive draft applications reach 90 days old. Users can prevent deletion by accessing their application through either an email hyperlink or the MyHMCTS dashboard to make amendments. Draft applications that remain inactive will be deleted after an additional 90-day period following the notification.

Unrecognised overseas judgments are not capable of providing the basis for a bankruptcy petition (Servis-Terminal Llc v Drelle)

Restructuring & Insolvency analysis: The Court of Appeal reversed the decision of the lower courts and set aside a bankruptcy order made on the petition of a creditor holding an overseas judgment which had not been recognised by the English court. A foreign judgment has no direct operation in England and so until it is registered, or separate proceedings are brought in the English courts, there is no debt capable of being enforced and as a result there is no liquidated sum payable as required by the Insolvency Act 1986 (IA 1986) before a bankruptcy petition can be presented. The overseas judgment had, in this case, created a debt (as a result of a claim for breach of duty) as opposed to simply confirming an underlying debt. Had there been a liquidated sum payable, without a judgment, the creditor would have been able to serve a statutory demand and then, unless that was successfully challenged, present a petition for bankruptcy. Written by Mark Sands, head of Insolvency at Apex Litigation Finance.

Insolvency Service publishes February 2025 enforcement outcomes management information

The Insolvency Service has updated its enforcement outcomes management information for February 2025. The data shows that there were 86 director disqualifications and 9 bankruptcy and debt relief restrictions.

It’s the wrong defendant and limitation has expired—a solution (Office Properties PL Ltd (in liquidation) v Adcamp LLP)

Restructuring & Insolvency analysis: The case arose from a claim with a significant error: it was brought against the wrong party. Furthermore, that error was not discovered until after limitation had expired. The practical significance of this case is that the situation may be remediable by substituting the correct party for the original wrong party under the Limitation Act 1980 (LA 1980). The correct defendant was the claimants’ former solicitors, and the claimants had believed the original defendant, a successor firm, was legally liable for the former solicitor’s wrongdoing. The court permitted the amendment substituting the correct defendant. It held that the claimants were asserting the same professional negligence claim but pursuing it against a new party, as opposed to asserting a different claim. The court did not seek to ‘punish’ the claimants for the error of their legal representatives and was prepared to excuse the mistake. Written by Heather Murphy, barrister at XXIV Old Buildings.

View Restructuring & Insolvency by content type :

News