Bankruptcy 101 for Investors: Salvaging Your Investments from the Ruins of a Portfolio Company Bankruptcy

That intriguing little tech company in which you invested has just filed bankruptcy. Will you ever be able to recover any of that investment? Maybe. It depends upon the form of your investment. And because recoveries depend upon the form of the investment, you may want to consider how you document your investments in the future.

The harsh reality is that almost all businesses that file bankruptcy are insolvent in the most basic sense of that term: they have more debts than assets. This means that the asset pie is too small, and not everyone will be paid the amounts to which they are entitled.

Bankruptcy is a process designed to divide up that too-small pie among creditors and equity holders in the fairest way possible under the circumstances. All creditors and interest holders must file proofs of their claims or interests that document the basis for their right to distribution from the company, so that their claims may be allowed as valid both as to nature and amount of the claim.

For allowed claims, the Bankruptcy Code establishes a hierarchy for payments that takes account of contract rights, state law, and bankruptcy principles. Those at the front of the line secured and priority creditors have a decent chance of at least partial recovery. Those at the very end — equity holders — rarely receive anything.

But these allocations are not set in stone. In a chapter 11 case, the debtor and creditors are permitted to modify the treatment of claims, if the affected parties consent to the terms of a proposed plan of reorganization. So, if you think that the company has value worth fighting for (as opposed to simply writing off losses), then you may want to enter into negotiations with other constituencies in the case to try to improve your outcome.

The Front of the Line: Secured Claims

If you lent money to the company on a secured basis, good news: you probably will recover some amount. Secured creditors stand the best chance of achieving substantial recovery in bankruptcy, to the extent that their pledged collateral has value. If you are fully secured, you should be paid in full eventually. If you are undersecured, at least your secured portion should be paid, and you may recover something on account of the unsecured portion of your claim.

Typically, secured creditors have lent money to the company subject to a security interest in either real estate or other assets, such as receivables, equipment, or intellectual property. Under state law, a secured creditor has the right to foreclose on the asset and sell it to repay the debt. Bankruptcys automatic stay prevents foreclosures from proceeding, but in exchange, secured creditors are entitled to be repaid the equivalent value of their collateral and to retain their liens until that payment is made.

Bank lenders fit the classic stereotype of secured lenders, but private equity or individual lenders are increasingly commonplace. In addition to secured claims arising from loans, vendors may hold purchase money security interests in the goods or equipment they sold to the company.

Major Issues for Secured Creditors:

  • Value of the collateral: A loan may be secured by the companys headquarters building, but it is a secured claim for purposes of bankruptcy only to the extent of the current value of that real estate. In other words, a US$500,000 loan secured by a lien on a property now worth only US$400,000 will be treated as a US$400,000 secured claim and a US$100,000 unsecured claim for the amount of the debt that exceeds the collateral value.
  • Treatment: A plan of reorganization usually provides for repayment of secured claims over a period of years, during which the creditor will be paid interest at a specified rate. If you as a secured creditor expected payment at maturity on a three-year loan, you would probably be unhappy to find that the plan proposes to repay you over a ten-year period, especially if the plan proposes an interest rate substantially below that specified in your loan agreement.

Possible Responses:

  • Contesting valuation: A dispute about the fair market value of real estate or receivables will usually be resolved by the bankruptcy court based upon competing appraisals. More challenging, however, is the valuation of intellectual property, such as patents, copyrights or trademarks, which are often the only assets available to a tech start-up for securing a loan. If the IP hasnt yet generated any revenues, then valuation will essentially be speculative, although, whatever its value, the IP is probably the only asset of any material value. Such disputes are typically resolved by settlement, with the secured creditor allowing the other creditors a portion of the value, whether that value is realized by sale or from revenues of the business after reorganization.
  • Contesting treatment: Debtors often provide for a protracted payment period for secured claims and a low interest rate because that combination means lower payments that leave some amount of net cash flow available to pay (or at least promise) to unsecured creditors. The Bankruptcy Code requires that secured creditors receive discounted stream of payments that at least equal the current fair market value of the collateral. If you want to contest treatment, you will need to file an objection to confirmation of the plan as well as vote against the plan. Contested confirmation hearings usually require evidentiary hearings, and are thus expensive. However, most such objections are settled by re-trading the deal embodied in the proposed plan.
  • Leverage: If you are willing to advance more money to the company as a DIP (debtor in possession) lender, so that it has the cash necessary to stay alive during the case, you may be able to increase your leverage over the plan process. DIP lenders are entitled to be paid in full, with interest and fees, ahead of even prepetition secured creditors. Some courts allow a roll-up of prepetition secured debt into the DIP loan for inventory and receivables collateral as it is used by the debtor, in effect elevating the status of the prepetition loan into the even higher priority of the DIP loan and insuring against any attack on the original loans validity or security. Moreover, if the company continues to lose money during the case, a DIP lender may effectively have a stranglehold on the case. Of course, it will also have sunk more good money into what may still be a black hole of need, but at least the company will be the DIP lenders very own money pit. This may make sense as a bet on the long-range value of the IP, but can be a highly risky proposition.

Lessons/Considerations for the Future:

  • Because of the likelihood of disagreements over the value of collateral, you should consider whenever possible seeking a blanket security interest covering all assets, rather than just one category. If you have a lien on everything, then other creditors cannot contend that the real value of the company lies in the assets to which your lien doesnt apply.
  • If your collateral is IP, be especially careful to take all necessary steps to perfect your interest by filing with the US Patent and Trademark Office, Copyright Office, and the state of incorporation. Otherwise, the creditors committee, acting on behalf of the unsecured creditors, may seek to invalidate your security interest. It is up to the creditor to assure proper recording.
  • A security interest granted within 90 days before the bankruptcy filing to provide additional assurances (usually after a payment default) to a previously unsecured creditor can be avoided and set aside on the grounds that the granting of the security interest gave an unfair extra edge compared with other unsecured creditors. However, the possibility of a challenge should not deter you; you should almost always seek such improvement in your position to provide better leverage in the event of bankruptcy. It is important to seek advice to structure such enhancements in a manner that offers the best possible defenses to any later attack.

The Middle of the Pack: Unsecured Claims

Unsecured creditors include bond or commercial paper lenders without collateral (or with insufficient collateral), trade creditors, employees, personal injury claimants, and other general creditors. By law, certain unsecured creditors have priority over others. Wage and benefit claims, tax claims, obligations for goods delivered on the eve of bankruptcy, and certain other types of claims are entitled to be paid before other unsecured claims, subject to statutory caps on the priority amounts. With the exception of pension claims in some cases, priority claims usually constitute a small percentage of the overall debt.

As an investor, you probably wont hold any priority claims. More likely, you may have made unsecured loans to the company or entered into other contractual arrangements that give rise to general, nonpriority unsecured claims.

A creditors committee will usually be appointed to represent the interests of unsecured creditors collectively. Typically, the largest non-insider unsecured creditors are selected, but the US Trustee seeks to have representation of the various types of claims, so appointments are not strictly by size. If you want to be active in the case and you are representative of a grouping of similarly situated claims, you can apply to be appointed to the committee. Partially secured creditors will usually not be considered. Bear in mind that members take on fiduciary responsibility to maximize recovery for all unsecured creditors as a group. These obligations might limit the strategies you would otherwise want to pursue in the case.

Major Issues for Unsecured Creditors:

  • Fraud claims against insiders: The committee or trustee often pursues claims for fraud, mismanagement, breach of fiduciary duty, or negligence against management or the directors, particularly where recovery on director and officer liability insurance is a possibility. Be aware that, if you have played a major role in the company, you may be among the targets for such litigation. On the other hand, if you are not a target, then you may benefit from any such recoveries as a member of the class.
  • Defending against claims objections and preference claims: In most larger chapter 11 cases and many chapter 7 liquidation cases, the committee or trustee will review the filed proofs of claim to determine whether the claim is well founded and the amount is accurate. If not, the committee or trustee will file an objection to claim and the creditor will have the ultimate burden of proving its claim against the debtor. The committee and trustee are also likely to sue unsecured creditors who have received payment on their accounts within the 90 days before the bankruptcy filing, just as creditors who received a late security interest might be sued. Many defenses exist. Most preference actions are settled.
  • Plan treatment: Plans of reorganization often separate various types of unsecured claims into different classes that will then receive different distributions under the plan. The Bankruptcy Code confers on debtors considerable discretion to create multiple classes of unsecured claims. Some classification limitations do apply. Most importantly, first, all claims in a particular class (or subclass) must be legally similar in character. Second, all claims in a class must be treated the same way. Third, between classes, any differences in treatment must not unfairly discriminate against one or more classes. As you might expect, the third requirement generates the most litigation.

Possible Responses:

  • If you are sued, whether on fraud allegations, objections to your claims, or preference actions, you will have to deal with the defense just as with any lawsuit. However, more options may exist for fashioning a settlement, as such disputes are often settled as part of the general horse-trading process to achieve a global resolution of the case under a plan that satisfies most creditors as essentially fair.
  • The flexibility of the similar claims and not unfairly discriminate standards offer considerable leeway for fashioning creative global settlements. Ultimately, however, particular creditors or classes of creditors upset with their treatment may be able to extract additional value by filing objections to the plan, which may prevent the debtor from achieving a consensual plan. Occasionally, such disputes lead to confirmation battles when the amount at stake justifies the extremely high cost of such litigation.

Lessons/Considerations for the Future: Unsecured lenders usually wish they held secured claims, but that is not always possible, especially if secured credit has already been maxed out. And trade creditors usually wish they had monitored their accounts receivable more conservatively to avoid undue exposure. In short, unless they supply an absolutely critical component for the debtors products, trade creditors individually dont have much leverage.

The Back of the Line: Equity Interests

In most cases, it is obvious from the outset that equity interests are entirely out of the money. Most plans simply wipe out old equity. Equity holders rarely find it worth participating in the case, with only a few exceptions as discussed below.

Major Issues for Equity:

  • Asserting equity value: Occasionally, initial estimates of asset value and outstanding claims indicate the possibility of a recovery for equity. In most cases, it will turn out to be an illusion, when later, more reliable data shows that the initial asset values have been overstated and claims understated. But if a material possibility of equity recovery exists, then the court may be willing to appoint an equity committee, in addition to the creditors committee. And in such cases, the debtor or trustee bears the additional fiduciary duty to maximize the value of the estate for the equity holders, not just the creditors.
  • Subordination of securities fraud claims: In the cases of publicly held companies, bankruptcy filings are often entangled with allegations of securities fraud, often with pending class actions as a major cause of the bankruptcy filing itself. In bankruptcy, unlike under state or federal securities laws, securities fraud claims are not treated like typical claims. Instead, Bankruptcy Code sect;510(b) specifically requires fraud claims seeking damages arising from the purchase or sale of securities to be treated as subordinate to the class of that security. So such damages claims are last in line behind the stock or other equity interest and therefore never have value in the bankruptcy case.
  • Tax and control issues: For tax pass-through entities, the recapture of depreciation as the result of a bankruptcy filing can be expensive, even if no equity value remains as of the time of filing. In some cases, equity owners are simply far more optimistic than creditors about the long term prospects for the company or its IP, and correspondingly loath to cede control.

Possible Responses:

  • Even a relatively attenuated argument of equity value will likely lead to some value left on the table for equity in the plan bargaining process. It is almost always cheaper to give equity the hope of some recovery in the future if the reorganized company performs better than expected.
  • The conflicting goals of securities law enforcement actions seeking forfeiture of corporate assets and the bankruptcy process sometimes offer leveraging options if the securities regulators are willing and able to go to bat for the victims of securities fraud.
  • It is possible for old equity to become the new equity even though creditors are not being paid in full. To do so, old equity must contribute substantial new value to the plan so that they can come out of the case still owning the equity. If enough new cash comes into the distributional pot, of course, creditors may be quite happy to allow old equity to emerge as the new owners. Alternatively, a third-party buyer with the participation of some old equity may take ownership through a reorganization plan, subject to full disclosure. Complicated rules govern the circumstances where old equity can emerge as the new owners.

Lessons/Consideration for the Future: If your investments are primarily in equity, you must be prepared for a complete loss in the event of a bankruptcy filing, unless you are willing to buy back the company from its creditors. If you also have a senior secured position, however, you may not care about your equity, as you may end up owning all or most of the assets or new equity on account of your secured claim.

Final Comments

The opportunity to cut deals about priority and treatment of claims and interests really only exists in chapter 11. Chapter 7 liquidations are governed by a relatively strict interpretation of priorities and proper treatment. If a feasible plan can be proposed, a case may be converted from chapter 7 to chapter 11 to make the deal possible through a plan.

Next in the series: Doing business through special purpose entities to limit bankruptcy risk.

S&P Places Boyd Gaming (BYD) Ratings on Review for Downgrade

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SP Global Ratings said it placed all ratings, including our B corporate credit rating, on Las Vegas-based Boyd Gaming Corp (Boyd) (NYSE: BYD) on CreditWatch with positive implications.

The CreditWatch listing reflects our expectation that the sale of Boyds 50% ownership interest in Marina District Development Co. (MDDC; doing business as the Borgata) will meaningfully reduce Boyds leverage as the company intends to use net cash proceeds of approximately $600 million from the transaction to repay debt, said SP Global Ratings credit analyst Stephen Pagano.

Pro forma for the sale of its interest in Borgata and the previously announced acquisitions of Aliante and Cannerys Las Vegas assets, we anticipate adjusted debt to EBITDA to improve to the mid- to high-5x area in 2016, compared to our previous expectation for leverage in the low- to mid-6x area. We expect EBITDA coverage of interest to improve to the mid- to high-2x area from the mid-2x. These forecasted credit measures are in line with our upgrade thresholds for Boyd, including leverage sustained under 6x and EBITDA interest coverage above 2x. Boyd and MGM expect the transaction to close in the third quarter.

In resolving the CreditWatch listing, we will monitor Boyds and MGMs progress in addressing closing conditions and in securing the required regulatory approvals needed to complete the transaction. In the event the sale is completed as outlined and Boyd uses the proceeds to repay debt, we will likely raise the corporate credit rating by one notch to B+ from B with a stable outlook. We would also expect to raise the issue-level ratings on Boyds secured debt and Peninsulas debt by one notch, in line with the upgrade of the company. In the event Boyd uses the proceeds to repay secured debt, we could revise our recovery rating on Boyds unsecured debt to 4 (average recovery prospects of 30% to 50%) from 5 (modest recovery prospects of 10% to 30%), as recovery prospects for unsecured lenders could improve due to lower secured debt balances in our simulated default scenario. This could result in a two-notch upgrade of Boyds unsecured debt, reflecting improved recovery prospects and the upgrade of Boyd.

S&P Places Valeant Pharma (VRX) Ratings on Review for Downgrade

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(Updated – March 16, 2016 11:57 AM EDT)

Standard Poors Ratings Services placed its ratings on Valeant Pharmaceuticals International Inc. (NYSE: VRX), including the B+ corporate credit rating, the BB rating on the senior secured debt, and the B- rating on the senior unsecured debt, on CreditWatch with negative implications. The recovery rating on the secured debt is 1 reflecting our expectation for very high (90%-100%) recovery on that debt in the event of a default. The recovery rating on the unsecured debt is 6 reflecting our expectation for negligible (0%-10%) recovery on that debt in the event of a default.

The placement of the ratings on CreditWatch with negative implications reflects an escalation of a number of risks for adverse developments, any one of which could weaken creditworthiness, said Standard Poors credit analyst David Kaplan.

The companys revised guidance, with meaningfully lower revenue and EBITDA estimates than we expected, will result in debt leverage levels higher than anticipated, and adds greater uncertainty about financial performance.

The delays in filing its 10-K for 2015 will likely result in a violation of reporting covenants this month. While the company has until the end of April to resolve the covenants in the credit agreement to avoid acceleration, and we expect the company to succeed with obtaining those waivers, this introduces incremental risk.

We estimate thinning cushion on financial covenants could constrain financial flexibility, and if performance falls short of current expectations the company could be forced to pursue a covenant waiver or asset sales.

In addition we see the potential for further operational deterioration due to loss of employees or diminished negotiating power with partners now that the company is weakened, and the potential for deterioration in scale and diversification if the company is forced to sell off significant portions of its assets.

Although our B- senior unsecured debt rating reflects our expectation for negligible (0%-10%) recovery in our base-case recovery analysis, which we base on our estimate of the most-likely scenario of default, we believe that recovery prospects for the unsecured lenders could likely be materially improved if the company pursues material asset sales and uses proceeds to reduce secured debt. Alternatively, in the unlikely and unexpected event of a near-term bankruptcy filing, we expect recovery on the unsecured notes would be much higher.

We aim to resolve the CreditWatch placement within 90 to 180 days, once the company resolves its covenant issues, has a chance to complete any near-term asset sales, and provides audited financials, and once we have greater confidence and visibility into operating performance trends.

We will monitor these multiple challenges to ascertain their impact on the rating. In some instances, we could consider a multiple-notch downgrade, for example, if waivers are not obtained from lenders regarding delayed filings.

Songa Offshore SE : Announces comprehensive refinancing

Songa Offshore SE (Songa Offshore or the Company) intends to issue a subordinated convertible bond of USD 100m with an option to upsize to USD 125m (the New Convertible Bond) and complete a subsequent equity offering of up to USD 25m at NOK 0.15 per share (the New Equity), both as part of a comprehensive refinancing. The proposed refinancing further includes a full conversion to equity of SONG06 (the Existing Convertible Bond) in an amount of USD 150 million at NOK 0.176 per share, significant interest reductions, maturity extensions and other amendments to SONG04, SONG05 and the Perestroika shareholder loan, as well as amendments to the Companys secured debt facilities (collectively the Refinancing). The New Convertible Bond is partly underwritten by way of a USD 91.5m bridge financing (the Bridge Bond), which has been subscribed for in full by the largest stakeholders in the Company. The Refinancing is supported by qualified majorities across all three bond series.

The Bridge Bond will immediately add needed liquidity and safeguard the operations of the Company and the delivery of Songa Enabler, the Companys final Cat D newbuild. A liquidity shortfall, cured by the Bridge Bond and the subsequent Refinancing, has arisen mainly due to the negative impact of the lower than anticipated initial utilisation of Songa Equinox and Songa Endurance, delayed rig deliveries, as well as cash deposit requirements in the bank financing related to Songa Encourage and Songa Enabler, as described in the Companys report for Q4 2015.

Songa Equinox and Songa Endurance both operated with an earnings efficiency of 98% for the last three weeks. Songa Encourage is expected to arrive in Bergen 15 March 2016 and commence drilling operations in April 2016. The delivery of Songa Enabler is expected to take place end of March and the rig is scheduled to commence drilling operations in August 2016.

The Refinancing will secure the commencement of all four long term Cat D drilling contracts for Statoil and create a sustainable long term financial platform for the Company. The four drilling contracts provide for ample debt amortisation capacity and will uniquely position Songa Offshore relative to other drilling contractors through the current market downturn.

Further details of the Refinancing is described below and set out in the attached materials.

Revision of completion dates for the Songa Equinox and Songa Endurance drilling contracts

The Statoil drilling contracts stipulate that the client is entitled to shorten the duration of the drilling contracts by the same amount of time that the rigs have been delayed, relative to a pre-agreed delivery window. In this respect, Songa Offshore has received notice that Statoil has exercised its contractual rights to reduce the contract lengths on the Songa Equinox by 347 days and on the Songa Endurance by 184 days.

Songa Encourage and Songa Enabler are scheduled to commence their drilling contracts in April 2016 and August 2016, each approximately four months after their respective pre-agreed delivery windows. The aggregate contract backlog for the four Cat D rigs, adjusted for the received notice described above, is estimated to be in excess of 30.5 rig years or USD 5.1 bn as of 29 February 2016, excluding options.

The New Convertible Bond

The New Convertible Bond will be issued by the Company as subordinated unsecured debt. The New Convertible Bond will be denominated in USD and will have a strike price of 15% above the reference price set at NOK 0.15. In addition, each investor allocated an amount in the New Convertible Bond will receive warrants at the new par value for shares in the Company in an amount of 1,701,720 for each USD 100,000 of allocation. The New Convertible Bond will have semi-annual coupon payments of 2% pa.

The outstanding amount under the Bridge Bond will be converted into the New Convertible Bond following the required resolutions by an extraordinary general meeting (EGM). In addition, the Company will give preference on participation to (i) holders of the Existing Convertible bonds, holders of SONG04 and SONG05, and existing shareholders, and (ii) new investors. Additional standard criteria, such as inter alia timeliness of application, will also be taken into consideration. The minimum subscription amount will be USD 150,000.

Interest reductions, extensions and other amendments to SONG04, SONG05 and the Perestroika Shareholder Loan

The maturity dates of SONG 04, SONG05 and the Perestroika shareholder loan is proposed amended, so that 1/3 of the current outstanding amount will mature in May 2018, December 2018 and June 2018, respectively (the First Maturities), with the remaining outstanding amounts to be repaid 30 months thereafter.

Coupon payments are proposed reduced to (i) 0% in the period to and including September 2016, (ii) approx. 2.5% on average in the period from and including October 2016, and (iii) 1.5% below the currently prevailing coupon rate from the respective First Maturities and until the respective final maturities. Interest accrued up to the effective date of the Refinancing will be paid to holders of SONG04, SONG05 and the Perestroika Shareholder Loan in the form of 1,119,159,876 shares in the Company (the Equity Compensation), equivalent to approx. 6% of the pro forma fully diluted share capital.

Covenants will be partially suspended and amended, providing the Company with increased headroom in the years ahead.

Conversion of the Existing Convertible Bond (SONG06)

All outstanding amounts under the USD 150m Existing Convertible Bonds shall be converted into new shares of the Company at NOK 0.176 (equivalent to a conversion of 85% of par value at a price of NOK 0.15 per share). As a result of the above conversion, the holders of the Existing Convertible Bonds will have an equity interest in the Company post-Conversion, but prior to any Equity Compensation, New Equity and conversion of the New Convertible Bond, of approx. 89.2%.

Amended bank financing

In connection with the Refinancing, covenants and other undertakings have been agreed amended across all bank facilities, including extensions of cross currency swaps related to SONG04 and SONG05.

New Equity

The Company intends to conduct an equity offering of up to USD 25 million (the New Equity) for the purpose of giving existing shareholders the opportunity to subscribe for new shares of the Company (the Equity Offering). New investors shall be allowed to subscribe in the Equity Offering, but existing shareholders shall have preferred allocation rights. The subscription price in the Equity Offering shall be NOK 0.15.

The New Equity Offering will be launched following the requisite approval of the Refinancing by the Companys bondholders and shareholders, and subject to approval of relevant authorities of an offering and listing prospectus. The further terms and particulars of the Equity Offering will be announced in due course, and described in the prospectus to be prepared in connection therewith.

Share capital reduction

The current nominal value of the Companys Ordinary Shares is EUR 0.11. As the Convertible Bond will be converted, and the New Convertible Bond and the New Equity will be offered, at a conversion/subscription price of less than the current nominal value of the Ordinary Shares, the Company intends to carry out a reduction of the nominal value of the Ordinary Shares. This reduction will be carried out as a reduction of share capital without distribution, and will be proposed resolved by an extraordinary general meeting of the Company. The proposed new nominal value will be EUR 0.001.

Due to the required capital reduction, the new shares to be issued as part of the Refinancing are expected to be issued in new separate share classes (Class A and Class B) on an interim basis, pending completion of the capital reduction and a subsequent merger of all shares to Ordinary Shares of new nominal value EUR 0.001. The Class A and Class B Shares will have equal rights as the Ordinary Shares (and each other), but will not be listed or admitted to trade on the Oslo Stock Exchange or any other exchange before conversion to Ordinary Shares.

Shares delivered to unsecured lenders and as a result of the conversion of the Existing Convertible Bond will remains unlisted as a separate class of equity until Songa Offshore has published its Q3 figures. The warrants will be exercisable 12 to 36 months after issue.

Extraordinary General Meeting and Bondholders Meetings

The actions contemplated in the Refinancing require approval by the Companys shareholders in an EGM, and by the Companys bondholders in bondholders meetings for each of the SONG04, SONG05 and SONG06 bonds (the Bondholders Meetings). Notice of such meetings and further details will be issued in due course.


The Refinancing is conditional upon inter alia the Bridge Bond having been issued and approval by sufficient majorities in the EGM and the respective Bondholders Meetings.

In this respect, the Company has received irrevocable undertakings to vote in favour of the proposed Refinancing amounting to 71%, 72% and 78% of the voting bonds in SONG 04, SONG05 and SONG06 respectively. In addition, the Companys majority shareholder Perestroika AS and certain other shareholders have confirmed that they will vote in favour of the required resolutions at the EGM.

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Swaps Accounting: FVA as a Flawed Convention

Leif Anderson, co-head of the global quant group at Bank of America Merrill Lynch, and two co-authors have prepared a draft of a paper that appears to identify an important error in the conventions for adjustments that derivatives dealers make to the disclosed valuations of their swap books.  It sounds like a very wonky sort of subject, but the paper does raise the broader question of corporate governance in investment banks.  Anderson and his co-authors (Darrell Duffie and Yang Song) describe some of these adjustments as functioning as a wealth transfer from the shareholders of an entity to its creditors/counter-parties.

It seems unlikely that such a practice will halt unless shareholders make an effort to halt it. And this in turn would seem an ideal cause for alpha-seeking shareholder activists, who may even now be crunching the numbers to confirm for themselves that Anderson et al are correct, and to figure out the angles in this for themselves.

Anderson, who holds a PhD in finance from Aarhus Business School, Denmark, is co-author of Interest Rate Modeling, with Vladimir Piterbarg, a classic work in the quant world.

The new paper, available online, although described by its authors as an “extremely preliminary draft,” makes categorical claims.

From the Beginning

Let’s begin with the beginning: the key accounting device at issue is called a “funding value adjustment” or FVA.   What it is on its face, as the phrase suggests, is an adjustment to the market value of derivatives that acknowledges the costs of the cash used to enter or maintain the unsecured derivatives position.  In other words, the swaps desk borrows money from its company Treasury, and charges the cost of that action against the value of its swaps position.

The authors compare FVA unfavorably to other adjustments, such as the credit valuation adjustment and the debt valuation adjustment, both of which are an established part of banks’ financial statements and are provided for in the generally accepted principles of fair-value accounting.  FVA came about because derivative desks don’t have access to funding at secured financing rates. They borrow from their firms’ treasuries and they are charged for that access as unsecured lenders. So (on the usual account of the significance of the adjustment) they modify the recorded equity value of their derivatives positions to reflect the present value of that charge.

The modifications can be quite considerable in total. In the Q4 2014 the Bank of America Merrill Lynch disclosed a FVA of $497 million.

There seem to be significant variations in how FVA gets done. The Office of the Comptroller of the Currency has announced the creation of a working group to look into the matter.

It’s a Bad Idea

But Anderson et al, in arguing that the use of an FVA against the derivative position is itself a bad idea, are making a broader point than the Comptroller’s concern that it isn’t always done in the same way. These authors are making a point based on the fundamental accounting idea of symmetry as applied to the swap itself.  In the absence of frictional default distress costs, the value to one dealer of entering the swap must be equal and opposite to the value of the same swap to the counterparty. After all, the total of cash flows on a swap for both dealers will add up to zero.

Further, the violation of this principle has marketplace consequences. The paper suggests inefficiencies it may motivate, and efficient transactions the practice may impede.

What Do Mamp;Ms have to do with this?

The practice also violates what is known to finance economists as the Modigliani-Miller theorem, first formulated in the academic literature in 1958. The MM theorem has become one of the foundations of thought about capital structure in the decades since.  It holds that in the absence of transaction costs, and in a context in which individuals and corporations borrow at the same rate, a change in the debt-to-equity ratio of a firm will not change the firm’s valuation.

The author’s say that the MM theorem does not “precisely” apply to the accounting issue, but regard it nonetheless as a valuable “informal argument” against FVA as currently practiced.

Though the reasoning gets intricate, the authors’ proposal is common sensual: that the costs of the cash borrowed intra-firm for swaps ought to be worked into what the trading desks of the counter-parties charge each other, rather than being charged (asymmetrically) against the value of the position each holds.

The issue, and variations it suggests, is likely to get more pressing over time, as regulators impose margin requirements on derivatives dealers and as more types of value adjustments are added to the already complicated mix of accounting practices.

Victory Nickel Completes Equity and Unsecured Debt Private Placement

TORONTO, March 7, 2016 (GLOBE NEWSWIRE) — Victory Nickel Inc. (Victory Nickel or the Company) (CSE: NI, today announced that it has completed the next step to strengthen the Companys balance sheet by restructuring a portion of its debt through the first tranche of a private placement of common shares and unsecured promissory convertible notes in settlement of approximately $5,179,000 of current indebtedness to certain of its unsecured lenders (the Promissory Convertible Note Holders) and trade creditors (the Trade Creditors) (collectively the Unsecured Debt Restructuring). The Unsecured Debt Restructuring included issuing 23,247,600 common shares of the Company at $0.05 per share and $0.25 per share, for a weighted average price of $0.12 per common share and issuing $2,443,000 of New Promissory Convertible Notes, as defined below.

Completion of the Unsecured Debt Restructuring represents approximately 50% of the value owed to the Promissory Convertible Note Holders and Trade Creditors that were presented with the terms of the Unsecured Debt Restructuring. The Company will offer those unsecured Promissory Convertible Note Holders and Trade Creditors who have not yet chosen to participate in the Unsecured Debt Restructuring the opportunity to participate in a second and final closing that will occur in the near future. A condition of the Companys secured debt restructuring (see news release dated March 3, 2016) was that unsecured debt held by those unsecured Promissory Convertible Note Holders and Trade Creditors who choose not to participate in the Unsecured Debt Restructuring cannot be paid before the secured debt is repaid in full without prior approval from the secured lender.

We would like to thank our Promissory Convertible Note Holders and Trade Creditors for recognizing the potential for the Companys frac sand and nickel businesses to generate significant cash and lead to a revaluation of the Companys share price under different oil and gas and metal industry circumstances, said Ren Galipeau, CEO. This transaction, combined with the secured debt restructuring will improve the Companys working capital by approximately $12,512,000. We sincerely hope that Victory Nickels equity will generate significant returns for all shareholders in the near future.

Promissory Convertible Note Holders

Approximately $3,932,000 of the debt held by unsecured Promissory Convertible Note Holders was repaid under the following terms:

1) 50% of unsecured promissory convertible notes issued between November 2013 and July 7, 2014 with an interest rate of 14.8% per annum (the Promissory Convertible Notes) were converted to common shares of Victory Nickel based on a price of $0.25 per share.
2) The remaining 50% of the Promissory Convertible Notes were replaced with new promissory convertible notes (the New Promissory Convertible Notes) having the following terms:

  • A maturity date of July 31, 2018.
  • An interest rate of 7% per annum, payable annually or at any time in cash or in shares valued at market at the option of the Company
  • Convertible at $0.25 per share.
  • On conversion of the New Promissory Convertible Notes, holders will also receive warrants, with an exercise price of $0.50 per share exercisable for a five-year period from the date of conversion, to acquire one additional common share of Victory Nickel for each four Victory Nickel common shares acquired.

Outstanding interest amounting to approximately $291,000 on the unsecured promissory convertible notes for the second and third quarters of 2015 was settled in Victory Nickel shares based on $0.05 per share.

Trade Creditors

1) Approximately $477,000 of debt to trade creditors was paid in shares at a price of $0.05 per share.
2) The remaining $477,000 of $954,000 debt to Trade Creditors was paid with New Promissory Convertible Notes with the same terms as outlined above.

As a result of these transactions, the Companys current debt will be reduced by $5,179,000 and $2,443,000 will be reclassified to long-term debt. The current market price for the Companys common shares is $0.02 per share resulting in equity increasing by US$461,000 for the shares issued and a non-cash gain of $2,275,000 being realized.

All dollar amounts in this news release are Canadian dollars. Any dollar amounts in United States currency have been converted to Canadian dollars at an exchange rate of 0.75:1.

About Victory Nickel

Victory Nickel Inc. is a Canadian company with four sulphide nickel deposits containing significant NI 43-101-compliant nickel resources and a significant frac sand resource at its Minago project. Victory Nickel is focused on becoming a mid-tier nickel producer by developing its existing properties, Minago, Mel and Lynn Lake (currently under option to Corazon Mining Ltd.) in Manitoba, and Lac Rocher in northwestern Qubec. Through a wholly-owned subsidiary, Victory Silica Ltd., Victory Nickel at its 7P Plant frac sand processing facility in Seven Persons Alberta, has established itself in the frac sand business prior to commencing frac sand production and sales from Minago.

Victory Nickel Inc.
Ren Galipeau or Sean Stokes
Phone: 416.363.8527
Fax: 416.626.0890

Forward-Looking Information: This news release contains certain forward-looking information. All information, other than information regarding historic fact that addresses activities, events or developments that the Company believes, expects or anticipates will or may occur in the future is forward-looking information. The forward-looking information contained in this news release, including information related to the completion and outcome of any debt restructuring activities reflects the current expectations, assumptions and/or beliefs of the Company based on information currently available to the Company. The forward-looking information contained in this news release is subject to a number of risks and uncertainties that may cause actual results or events to differ materially from current expectations. Any forward-looking information speaks only as of the date on which it is made and, except as may be required by applicable law, the Company disclaims any obligation to update or modify such forward-looking information, either because of new information, future events or for any other reason. Although the Company believes that the assumptions inherent in the forward-looking information are reasonable, forward-looking information is not a guarantee of future performance and accordingly undue reliance should not be put on such information due to the inherent uncertainty therein.

Jesinoski Update: TILA Rescission in a Post-Jesinoski World


A little over one year ago, the US Supreme Court issued its ruling in Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), which resolved a circuit court spit regarding how a mortgage borrower may exercise the right of rescission under the Truth-in-Lending-Act (TILA).

The right of rescission provided by TILA(15 USC. sect; 1635) gives borrowers an extended right to rescind within three years if the lender has failed to provide to the borrower either the notice of rescission or accurate material disclosures.

Prior to Jesinoski, there was a circuit court split regarding whether, in order to exercise the extended right of rescission, borrowers only had to provide written notice of rescission or file a lawsuit within the three-year deadline.

The Supreme Court in Jesinoski found that Section 1635 le[ft] no doubt that rescission is effected when the borrower notifies the lender of his intention to rescind, and that so long as [a] borrower notifies [the lender] within three years after the transaction is consummated, the rescission is timely. The Supreme Court noted that [n]othing in [TILA] suggests that a borrower need also file a lawsuit within th[e] three year period and rejected the argument that written notice of rescission does not suffice if the lender disputes the availability of the rescission remedy, finding Section 1635 of TILA draws no distinction between disputed and undisputed rescissions.

While conclusively determining that rescission may be affected upon written notice, Jesinoski left open a number of issues regarding how rescission operates in practice after notice of rescission is provided. Subsequent cases have provided some clarity with respect to this.

Timing of Rescission Process

Among the issues left open by Jesinoski is how the timing of the rescission process works. Section 1026.23(d) of Regulation Z, which implements TILA, provides that upon rescission: (1) the security interest giving rise to the right of rescission becomes void and the borrower has no liability for any amount, including any finance charge; (2) within 20 calendar days after receipt of a notice of rescission, the creditor must return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest; and (3) when the creditor has complied with the requirements outlined in (2), the borrower must tender the money or property to the creditor (or, where the latter would be impracticable or inequitable, tender its reasonable value). It also provides that the procedures outlined in (2) and (3) may be modified by court order.

Prior to Jesinoski, courts in many jurisdictions had exercised discretion in determining whether to require a rescinding borrower to repay the loan proceeds (ie, to tender) before the lender is required to release its mortgage. Cases decided subsequent to Jesinoski have continued to find that a court may require borrowers to produce evidence of an ability to tender as a condition to enforcing rescission.

For example, in Deutsche Bank Natl Trust Co. v. Gardner, 125 A. 3d 1221 (Pa. 2015), the court noted that while the default procedure upon notice of rescission is ordinarily for the lender to take steps necessary to reflect termination of the security interest and to return any property or money given by the borrower before the borrower must tender, Section 1026.23(d) empowers the court to alter or reorder the procedure of the rescission. The court held that rescission may be conditioned on tender by the borrower because a debtors inability to tender the funds delivered by the lender would render termination of the security interest inappropriate.

Other courts have held, as some did before Jesinoski, that borrowers can state a claim for rescission without pleading that they have tendered or that they have the ability to tender. See, eg, Obeng-Amponsah v. Chase Home Finance, LLC, 624 Fed. Appx. 459 (9th Cir. 2015).

Rescission in the Bankruptcy Context

Jesinoski also raised concerns for lenders in the bankruptcy context, given the possibility of a bankruptcy court affirming the validity of a rescission without requiring a borrower to tender, and invalidating a lenders mortgage lien as a result (which would in turn benefit unsecured lenders). Subsequent decisions may ameliorate such concerns.

In In re Brown, 538 BR 714 (Bankr. ED Virginia 2015), the court noted that there is a difference between giving notice of rescission and determining whether the loan is properly rescinded and that [g]iving notice of rescission does not . . . mean that the transaction must be unwound, nor does it automatically void the loan or cause the lender to ipso facto forfeit its loan. The court stated that a transaction will not be unwound [i]f a borrower cannot tender [a] rescission payment within a reasonable time, finding that it would be inequitable to allow a debtor to achieve rescission without meeting his tender obligation and thereby reduce the lender to an unsecured creditor.

Another bankruptcy court decision, In re Kelley, 2016 WL 281467 (Bankr. ND Cal. Jan. 21, 2016), similarly found that courts can modify the sequence of events in th[e] rescission process provided by Section 1635 and can refuse to enforce rescission when a borrower lacks capacity to tender.

Defenses to Rescission: Creditors Burden

Jesinoski also left open issues regarding the ability of creditors to assert defenses to rescission claims and their burden with respect to asserting such defenses. One case that touched upon the issue of a creditors defense to rescission claims was Middleton v. Guaranteed Rate, Inc., 2015 WL 3934934 (D. Nev. June 25, 2015). The court in this case rejected the argument that a creditor waves any defense to a TILA claim or lacks standing to defend against one if the creditor fails to file its own lawsuit for declaratory judgment as to the ineffectiveness of the rescission, finding the plaintiffs cite[d] no authority for the proposition that one may waive a defense by electing not to affirmatively seek a declaratory judgment affirming the defense.

Regarding the effect of the TILA statute of limitations on rescission claims and defenses to those claims, Jesinoski did not address whether a borrower must bring an action to remove a recorded lien within TILAs general one-year statute of limitations or whether a lender must comply with any TILA time limitations to return funds paid by a rescinding borrower regardless of whether the borrower brings a lawsuit. At least one post-Jesinoski court decision has provided support for the former. In Jackson v. Bank of America, NA, 2015 WL 5684121 (MD Ga. Sep. 28, 2015), the court found that TILAs one year statute of limitations for violations of rescission under [Section 1635] . . . runs from twenty days after a [borrower] provides notice of rescission, and where a borrower does not file a lawsuit to enforce rescission within this time, the borrower cannot state a viable claim for rescission.

Another post-Jesinoski decision, however, indicates that even when a borrower fails to bring a lawsuit within the TILA statute of limitations, rescission may be effective as a matter of law if the creditor also fails to take action. In Paatalo v. JPMorgan Chase Bank, 2015 WL 7015317 (D. Or. Nov. 12, 2015) the court noted that Jesinoski does not amount to a holding that the process of unwinding a loan is automatic and complete upon a borrowers written notice of rescission. However, the court found that under Section 1635, once notice of rescission has been provided, the creditor must either begin the unwinding process by returning the borrowers money and taking action to reflect the termination of the security interest, or filing a lawsuit to dispute the plaintiffs right to rescind. If neither occurs within the TILA statute of limitations, the court concluded that the rescission and voiding of the security interest are effective as a matter of law as of the date of the notice. Thus, according to this decision, the burden of filing suit is upon creditors if they believe a borrowers rescission is improper or invalid.


Thus far, Jesinoski appears to have had limited impact in modifying preexisting case law regarding issues such as the timeline for rescission, whether borrowers can be required to tender as a prerequisite for enforcing rescission, and a creditors burden with respect to disputing the validity of rescission. Decisions subsequent to Jesinoski have addressed such issues, though none appear to have reversed pre-Jesinoski precedent as of yet. Nonetheless, the Jesinoski decision may still have some future impact in changing prior law regarding the rescission process and a creditors burden in disputing rescission. Though the ultimate ramifications of the Jesinoski decision remain unclear, future decisions will likely continue to provide some clarity regarding how TILA rescission works in the post-Jesinoski world.

Restructuring & Insolvency 2016: Analysis

Arthur Cox, Dublin

Weil Gotshal Manges has 10 lawyers selected for inclusion this year, including one of the most highly nominated individuals in the world in Marcia Goldstein. Co-chair of the firms business finance and restructuring department, she is the best in the business in the eyes of her peers. Her track record is second to none, and she led the restructurings of WorldCom and Parmalat.Stephen Karotkin was one of the lead attorneys representing General Motors in its chapter 11 case and is universally well respected, while Matthew Barr joined the firm from Milbank in late 2015 and is a real asset. The eminent Richard Krasnow is regarded as a dean of the NY bankruptcy bar.

Alfredo Prez is managing partner of the firms Houston office and played a lead role in the bankruptcies of American Airlines, City of Detroit, WorldCom and Lehman among others, while Martin Sosland in Dallas won commendation for his work as one of the principal partners involved in the firms representation of Enron Corp. The firm is also very strong in London, where Andrew Wilkinson is a former European head and co-head of restructuring at Goldman Sachs and a major player in this market and is known for his work on behalf of creditors, debtors, financial institutions and government bodies. Alongside him, the very fine Adam Plainer is leading the team advising KPMG as joint administrators in MF Global UKs special administration. Jean-Dominique Daudier de Cassini co-heads the highly rated Paris business finance and restructuring department and he is listed alongside his fellow co-head Philippe Druon, a first-class adviser to both domestic and international funds and companies.

Akin Gump Strauss Hauer Feld performs particularly well in this years research, driven in part by its acquisition of three nominees in London from the now defunct Bingham McCutchen once the leading firm in our research overall and a WWL Insolvency Firm of the Year Award winner. Daniel Golden heads the financial restructuring practice group in New York and his skills set him apart from the field. Recognised for his creditor and bondholder practice, his notable representations include NII Holdings, Residential Capital and Sabine Oil Gas Corporation. Fred Hodaras creditor practice is market leading and he is particularly in demand for cross-border insolvency matters, while Michael Stamer is recognised for the quality of his Chapter 11 work in particular. Lisa Beckerman is highly respected in the industry and serves on the board of the American Bankruptcy Institute alongside her well-regarded practice. Ira Dizengoff is first rate for his creditors and bondholders committee work, while Charles Gibbs in Dallas is said to be outstanding for his debtor work in particular. The firms international strength is demonstrated by further inclusions in Hong Kong, where Naomi Moore is known for her cross-border expertise and knowledge of the insurance and reinsurance market. In the aforementioned London office, James Roome is supremely impressive, one of the most highly rated lawyers in the UK research and praised for his contentious work as well as for the quality of his investment advice to financial institution clients. James Terrys distressed debt work is second to none, while Barry Russell is praised for his cross-border work and has acted as counsel to creditor groups in the restructurings of Royal Imtech, Connaught and Icelandic banks Kaupthing, Landsbanki and Glitnir.

The nine lawyers from Clifford Chance are selected from six countries, demonstrating the firms global profile in this area. Three are from England, where Philip Hertz is incisive and impressive and known for his insurance related expertise in particular. David Steinberg is joint leader of the firms practice in London and praised for both debtor and creditor work that includes advising creditors and customersof the Lehmans and MF Global estates on a range of issues. Adrian Cohen is advising Co-operative Bank on its current capital and financial restructuring and is first rate in the eyes of his clients and peers. Reinhard Dammann is one of the most highly respected experts in France and is particularly praised for his cross-border experience. Iigo Villoria leads the practice in the Madrid office and is similarly well respected both locally and across Europe, while Bartosz Kruewski in Poland is known for his excellent contentious and non-contentious restructuring work. Mark Hyde in Hong Kong is global head of the firms insolvency and restructuring practice and one of the big names in this sphere having been involved in major restructurings/insolvencies such as Peregine, Maxwell, Dubai World and Nakheel. Peter Avery and Deborah Walker combine to give the firm a highly rated presence in Dubai.

DLA Piper sees nine of its lawyers selected for inclusion this year, with its US offices particularly well represented. Gregg Galardi is a dominant figure in the New York market and global co-chair of the firms restructuring practice. Three partners are selected from Delaware, where Craig Martin is recommended for his work on complex distressed situations and Stuart Brown is a first-class bankruptcy lawyer. Selinda Melnik is internationally recognised for her work in this area. Mark Fairbairn in Hong Kong is the firms head of restructuring in Asia and one of the foremost experts in the region, while the firm is also represented in Europe through the inclusion of Jasper Berkenbosch in Amsterdam.

Ashurst also sees nine of its lawyers selected for inclusion. The firm is particularly strong in Australia with five nominees listed. James Marshall is one of the best in the business and is the global co-head of the firms restructuring and special situations practice. He was praised for the breadth of his practice and depth of his expertise, and he has acted for lenders and creditors as well as parties in the secondary debt market and in relation to distressed MA. Michael Sloan is highly rated for his restructuring work on behalf of corporations in both Australia and New Zealand, while Ross McClymont leads the firms restructuring and special situations practice in Melbourne and is a very fine lawyer with a total grasp of the issues. In London, Dan Hamilton is much in demand for his leveraged and structured finance restructuring expertise, while global co-head of the practice Giles Boothman is outstanding for all types of distressed work. The firm is also recognised in Asia for this work; everybody knows Bertie Mehigan and Carl Dunton is one of the pre-eminent experts in Singapore.

Kirkland Ellis expertise stretches across the US, Asia and Europe and it sees eight of its lawyers selected for inclusion. At their head is the legendary James Sprayregen, described as one of the foremost lawyers of his generation and known for his work on Chapter 11 cases such as Energy Future Holdings Corp and Caesars Entertainment Operating Co. Paul Basta in New York also represented the latter client, as well as Kerzner International and Charter Communications,and is extremely well regarded across the US and beyond. Clients and peers also spoke highly of Marc Kieselstein in Chicago for his Chapter 11 expertise in particular, while David Seligman is recognised for his work across a range of industries including transportation, energy, financial institution and real estate. Neil McDonald in Hong Kong leads Kirklands restructuring practice in Asia and is formidably good in advising financial institutions, hedge funds and private equity firms. Damien Coles was commended to our researchers as the go-to guy for Indonesian restructurings. In London, Kon Asimacopoulos is praised for his contentious work in this sector as well as for his representation of debtors and debt and equity investors. In Munich, Leo Plank is one of the leading lawyers in Germany for the representation of institutional high-yield and distressed debt investors.

Jones Day sees seven nominees selected, with six in the US and a further listing in England. In the former, the brilliant Corinne Ball is co-head of the business restructuring and reorganisation practice in New York and universally known for leading the firms team on the successful Chapter 11 reorganisation of Chrysler. Bruce Bennett in Los Angeles acted as co-lead counsel for the City of Detroit in its Chapter 9 debt adjustment case, and his fellow co-lead counsel David Heiman is also absolutely first class in the eyes of his peers. Paul Leake is head of the business restructuring and reorganisation practice and highly regarded for his representation of all types of party in out-of-court and chapter 11 debtor matters including those relating to Georgia Gulf, Globalstar and Independence Air. Ben Larkin is tremendously impressive and gives the firm a presence in London.

Latham Watkins improves its position in this years rankings to seven nominees, led by global co-chair of the restructuring, insolvency and workoutspractice Jan Baker. One of the finest legal minds I have come across, he is immediate past chair of the American College of Bankruptcy and universally respected across the market. Fellow co-chair of the practice Mitchell Seider is known for the unimpeachable quality of his counsel to secured lenders, bond holders, creditors committees and debtors. John Houghton in London is also a global co-chair of the practice as well as head of the European practice and he is praised as a formidable practitioner and real thought leader in this field. David Heller in Chicago is much sought after for his advice to secured and unsecured lenders as well as for his counsel to companies in relation to their restructurings.

The seven nominees from Skadden Arps Slate Meagher Flom are similarly split between the US and London offices. In the former, Jay Goffman in the New York office is the global leader of corporate restructuring group and an absolute market leader for restructuring work having successfully led those of America West Airlines, Centro Properties Group, DS Waters and Everest Capital among others, and his expertise related to pre-packaged restructurings knows no bounds. Ken Ziman is currently representing Millennium Health in its voluntary pre-packaged Chapter 11 cases and is quite brilliant according to those who have seen him in action. In London, Chris Mallon leads the firms corporate restructuring practice in Europe and is one of the most highly regarded individuals in our research worldwide. His client list is second to none having represented Enron, Global Crossing, WorldCom, Parmalat and Eurotunnel among others, and interviewees commented on his ability to translate complicated situations into comprehensible and above all commercially aware language. Alongside him, Dominic McCahill is recognised for his representation of clients including the winding-up committees of Kaupthing Bank, the Lehman Brothers estate and the Enron estate in their respective Chapter 11 bankruptcies.

The London office of Freshfields Bruckhaus Deringer is phenomenal for this type of work, and Nick Segal in particular was picked out as a superstar. He was commended to researchers for his work in a wide range of countries, as well as for his expertise relating to contested matters. Ken Baird is global head of the restructuring and insolvency team and is highly respected for his work on complex restructurings and insolvencies, both at home and abroad, for creditor and debtor clients. Richard Tett has a major reputation and worked with the Bank of England on various financial institution workouts including those of Bradford Bingley, Landsbanki and Kaupthing. Neil Golding counts thegovernment of Trinidad, Zurich Insurance Company and the Bank of England among his clients, and his qualifications as an insolvency practitioner make him uniquely able to give often invaluable advice. Adam Gallagher recently advised the senior co-ordinating committee in connection with the approximately 1 billion financial restructuring of the Biffa Group, and is a huge hit with clients I am reluctant to recommend him in case anyone else tries to hire him. Lars Westpfahl in Hamburg is rated as one of the foremost experts in Germany, and Raffaele Lener in Rome is similarly well regarded by his peers in Italy.

Larry Nyhan is co-leader of Sidley Austins corporate reorganisation and bankruptcy groupand a first-rate lawyer. One of seven nominees from the firm, he is highly regarded for his Chapter 11 work. Alongside him in Chicago, Bryan Krakauer is known for his creditor work in relation to the Lehman, Sentinel and Petters bankruptcy proceedings. Jennifer Hagle in California is fantastic for work relating to banks, hedge funds and other financial institutions. Patrick Corr is head of thecorporate reorganisation and bankruptcy group in London and a very skilled operator, and he is praised for his work in both contentious and non-contentious settings.

Walkers is regarded as the go to firm for offshore advice, and sees its contingent grow to six in this edition. Fraser Hern in Hong Kong is much admired for his contentious work in this sector, while Neil Upton is one of three representatives of the firms office in the Cayman Islands and an excellent lawyer in all he does. Sandie Corbettis managing partner of the British Virgin Islands office and widely recognised for her persuasive and effective work in contentious insolvency proceedings. Robert Foote is selected in Singapore and is also very highly regarded in the market.

Linklaters maintains a strong practice in this area, particularly in Europe. Tony Bugg in London is global head of the restructuring and insolvency practice and one of the big names in the market. He is very well known for his very high profile and tremendously impressive work co-leading the team advising PwC as administrators of Lehman Brothers International (Europe). Rebecca Jarvis recently advised the senior lenders in the 2.2 billion restructuring of the European Directories Group.Kolja von Bismarck is one of the premier experts in Germany for both creditor and debtor work, and he is recognised for his cross-border expertise in particular, while Aymar de Maulon is similarly well regarded in France. David Kidd in the Hong Kong office is said to be one of the finest restructuring lawyers in Asia by his peers.

Pachulski Stang Ziehl Jones is one of the leading firms in the US for this type of work and earns five places in this years edition. Isaac Pachulski in Los Angeles is a class apart in his representation of debtors and creditors and Richard Pachulski is similarly highly regarded as one of the foremost experts in California. Laura Davis Jones in Delaware is renowned for her work as debtors counsel in theContinental Airlinesbankruptcy case and is a very impressive operator, both legally skilled and highly commercial.

The UK Bar is home to many market-leading experts, with 11 based at South Square alone. Gabriel Moss QC has acted as leading counsel in 11 major Supreme Court, Privy Council, CJEU and EFTA Court casesin recent years, and is second to none in his understanding of all facets of insolvency law. William Trower QC is incredibly experienced and is acting for the administrators ofLehman BrothersandNortel, having previously acted in relation to the insolvencies of Kaupthing and Landsbanki. Robin Dicker QC is simply outstanding, and has appeared before the UK Supreme Court in relation to Nortel/Lehman Brothers and the Court of Appeal in relation to Lehman Brothers International (Europe), among many others. Antony Zacaroli QC recently advised the administrators of the Phones 4U Group and was commended to researchers as quite brilliant, while Felicity Toube QC was highlighted by private practitioners as great to work with and the first name on my list when I need a barrister.

Four nominees appear from Klee Tuchin Bogdanoff Stern, led by founding partner Kenneth Klee one of the most highly regarded individuals in our research worldwide. Described as one of the forefathers of modern bankruptcy law, he is Professor Emeritus at the UCLA School of Law and a real thought leader in this field. Alongside him, Michael Tuchin is absolutely first class, whether for debtor work for clients such as Metro-Goldwyn-Mayer Studios in its Chapter 11 proceedings, creditors or in out-of-court proceedings such as the restructuring of MGM-Mirage. Lee Bogdanoff is the real deal, feted for his work across all disciplines and especially respected for his litigation practice he has represented Washington Mutual and Enron.

Evan Flaschen is the chair of the financial restructuring group at Bracewell Giulianiand one of the all-time greats. Praised in particular for his knowledge of maritime restructuring matters, he also stands out for the quality of his bankruptcy litigation practice.

Alan Kornberg is chair of the bankruptcy and corporate reorganisation department of Paul Weiss Rifkind Wharton Garrison in New York and a legend in this field. His recent assignments include representing the ad hoc committee of first lien debtholders of Texas Competitive Electric Holdings Companyin the Chapter 11 case that resulted from the largest leveraged buyout in history. Alongside him Andrew Rosenberg was recommended to researchers for his work on General Motors Chapter 11 case.

Donald Bernstein heads the insolvency and restructuring practice at Davis Polk Wardwell and one of the foremost figures in this field. He has represented companies such as Ford Motor Company in restructurings, as well as a range of creditors and liquidators. He is also much sought after by financial institutions including JPMorgan Chase, Citibank, Goldman Sachs and Morgan Stanley for his insightful and incisive advice on global credit risk management. Marshall Huebner is co-head of the group and another big name in the market having acted as lead counsel to the Federal Reserve Bank of New York and to the US Department of the Treasury in relation to their multiple financings and equity stake in the American International Group. He also acted as lead US counsel to the joint administrators and liquidators of Lehman Brothers International (Europe) and its UK Lehman affiliates, and as lead bankruptcy and restructuring counsel to Delta Air Lines. They have acted on some of the biggest cases in history said one interviewee, and you can see why their skills are second to none.

Hamish Anderson is one of four nominees from Norton Rose Fulbright, and he is recognised for his work on behalf of insolvency practitioners and creditors both at home and abroad, as well as for his commercial and practical advice to regulators.

Dominic Emmett heads the restructuring and insolvency group at Gilbert + Tobin, and he is a veteran of some of Australias largest workouts and insolvencies. Described as a very fine lawyer and a joy to deal with, he received votes from across the region and beyond.

In Bermuda, Robin Mayor heads the insolvency and restructuring practice of Conyers Dill Pearman and is the counsel of choice for a wide range of companies, regulators, investors, creditors and liquidators. She was commended to researchers for the hugely impressive breadth of her expertise.

Jay Carfagnini at Goodmans in Toronto is the most highly nominated lawyer in the country and the go-to guy for major restructurings in Canada, having participated in those of Nortel Networks, MF Global Canada and LightSquared. As well as being highly rated domestically he also garnered votes from the UK and US in recognition of his knowledge of the intersection of Canadian law with their local jurisdictions.

Patrick Ang of Rajah Tann in Singapore is viewed as one of the foremost insolvency lawyers in Asia by the clients and peers we canvassed, and he was praised for his contentious and non-contentious work on behalf of financial institutions and companies. His experience includes acting for the shareholders of Asia Pulp and Paper, Lehman Brothers Singapore and Nortel Networks Singapore.

William Day of Arthur Cox has participated in some of Irelands most high profile insolvencies in recent years, including advising Eircom on its restructuring. He is very able and a real pleasure to work with, according to our sources.