Challenges of Emerging Market Restructurings in the Age of COVID-19
by | posted in: Bankruptcy, International and Comparative | 0

By Steven T. Kargman (Kargman Associates/International Restructuring Advisors)

Steven T. Kargman

As part of the overall global economic slowdown in the wake of the COVID-19 pandemic, many emerging market economies around the globe have suffered sharp economic downturns, particularly in light of the lockdowns of economies that were imposed in many of these countries.  With the economic fallout from the COVID-19 pandemic in emerging economies, a number of these economies have been faced with a veritable perfect storm.

Specifically, many of these economies have been adversely affected by, among other things, a sharp drop in prices for commodities such as oil and various metals, the drying up of foreign tourism revenues in view of the disruption of international air travel and the closing of national borders, and the major decrease in remittances due to layoffs of overseas foreign workers.  In addition, many major emerging market currencies have experienced significant depreciation vis-à-vis hard currencies such as the US dollar.

Moreover, emerging economies as a whole have also faced what economists term a “sudden stop”—i.e., a sudden outflow of foreign investment capital that had previously been flowing into these economies.  Furthermore, the public finances of governments in the emerging markets have become strained as such governments have been forced to make expenditures on economic recovery programs as well as public health responses to the pandemic.

The article discusses the implications of the global economic slowdown associated with COVID-19 for restructuring activity in the emerging markets around the globe.  In particular, the article examines how the economic slowdown may give rise to several different types of emerging market restructurings, namely, sovereign debt restructurings, corporate debt restructurings, and infrastructure project restructurings.  It also examines how the economic slowdown in the emerging markets might affect restructuring-related matters involving state-owned enterprises (SOEs) and non-performing loans (NPLs) in national banking systems.

The article also considers special issues associated with China’s newly prominent role as the largest official creditor to the emerging markets and developing countries and China’s sponsorship of Belt and Road Initiative (BRI) projects around the world.  Further, the article discusses other legal and policy issues that have become more salient in recent years in the context of emerging market restructurings, such as the role of holdouts in sovereign debt restructurings as well as the relevance in corporate debt restructurings in these jurisdictions of any potential gap that may exist between insolvency/restructuring law and practice.

The full article can be found here.

Debt Restructuring and Notions of Fairness
by | posted in: Bankruptcy Roundtable Updates, Cramdown and Priority, Workouts and Pre-Packs | 0

By Sarah Paterson (London School of Economics & Political Science)

In a recent article, I argue that we have repeatedly failed to identify clearly our concerns for fairness in different types of debt restructuring situations, and that this has confused corporate bankruptcy policy debate.  To defend the article’s thesis, I build a theoretical frame by unpacking the principles and the procedural demands of fairness from diverse fields of scholarship such as moral and political philosophy, biological sciences, psychology, organisation theory, group theory and economics.  I apply this theoretical frame to three very different types of debt restructuring: a restructuring of a small or medium sized enterprise; a restructuring of a large corporate; and a restructuring of a financial institution in English law.  In each case, a fairly typical fact pattern is outlined to ground the analysis, and the quality and extent of the fairness concerns examined.

The analysis in the article concentrates exclusively on fairness.  It does not consider the trade-off between fairness and other objectives (such as cost reduction), or utilitarian objections (such as concern that a situation which differentiates between classes of stakeholder in its approach to the fairness of the case would make stakeholders worse off overall), or arguments that what we might consider to be questions of fairness should properly be reinterpreted as economic questions.  In short, its objective is not to argue that fairness should prevail over all other considerations, but rather to explore, as an initial question, the quality of fairness in each of the situations with which it is concerned.

S. Paterson, ‘Debt Restructuring and Notions of Fairness’ (2017) 80(4) Modern Law Review 600 available here.