Debt Restructuring Agreements

Faced with the sluggish financial situation of these highly indebted countries, Thomas E. Lovejoy proposed the first DNA model in 1984. It was analogous to the popular debt-for-equity swap, since debt could be „swapped” for another form of payment. In the case of the A. D.D., it allowed indebted governments to buy debts at a discount on their face value and exchange them for environmental investments such as forests, etc. On the one hand, a debtor faces difficulties with a number of creditors, since he is legally obliged to negotiate with each creditor the terms of the agreement. If the debtor negotiates individually with a creditor through a conventional peace agreement, such an agreement does not bind other creditors. In other words, non-PKPU agreements are becoming more and more complex to stay in hand. The status quo agreement prohibits the acceleration or termination of loans, the execution of guarantees or the initiation of insolvency proceedings. It freezes all debts and lenders are prohibited from taking steps to improve their individual positions.

However, lenders will want to demonstrate that a business has intrinsic value, that the business model of the business is sound and that the restructuring is supported by the company`s main creditors. Due to the increase in the frequency of business bankruptcies, in part due to the current economic climate, a „standard” approach to restructuring has developed. While each case has unique characteristics, the restructuring process follows a number of important phases. First, a decline in business performance is generally identified by management accounts or as the result of revised management forecasts. This will trigger a meeting of lenders and other stakeholders in anticipation of a breakdown of financial alliances or a liquidity crisis. Chapter 11 allows debtors to restructure their commitments, restructure them and become financiallyable businesses. Transfer to Newco A variation of some of the above ideas is that all interest groups for debt and equity agree to transfer the borrower`s good or functional assets or business to a newly created entity (Newco). In return for the reduction or cancellation of their debts on the borrower, financial creditors may: (i) incur debts to Newco, (ii) equity to Newco or (iii) both. Sometimes this type of structure is used in combination with a pre-pack (see below).

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