On the money

Restructurings used to be relatively simple in so far as there were just two
main bodies of interest – the shareholders on one side and the lending banks on
the other with the negotiation about how much or how little the shareholders
would be left with. Any complications tended to be between banks and whether
they would work together or seek individually to grab what they could from the

Three things have happened to change that. First, banks rarely hold onto the
loans they make, but parcel them up and sell them on to third parties.

Second, there is more variety in lenders and in the nature of debt. The
holders of loans, mezzanine finance, bonds of various kinds, payment in kind
notes (all with different claims on a firm’s assets, different rates of interest
and duration) are there, but often in an often ill-defined pecking order.

Third, there is a huge market in distressed debt. A bank which bought a loan
at £100 may have sold it at £30 to a hedge fund or distressed debt specialist.
These people have a different perspective on the company and whether they want
it to survive.

The issue going forward is how these parties will behave when companies get
into difficulty, who will coordinate any rescue and whether it will be possible
to reconcile what might be very different approaches between traditional lenders
and new players like hedge funds. Some of these tensions are surfacing at
Eurotunnel , the summer’s biggest potential bankruptcy, but it’s just the

For a clue to the future, look at the fact that the banks are running down
their restructuring and insolvency departments. But the lawyers and accountants
are rapidly building theirs up.

Anthony Hilton is financial editor of the Evening Standard

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