Pre­pa­ra­ti­on for the bond­hol­ders’ mee­ting — a deman­ding chall­enge

In recent years, a num­ber of bond issuers have had to admit that they lack the finan­cial resour­ces to repay their bonds on time. During the bon­d’s term, the issuers were not in a posi­ti­on to gra­du­al­ly build up reser­ves for the repay­ment of the bonds due at matu­ri­ty and/or to ensu­re refi­nan­cing. Such a situa­ti­on usual­ly occurs when­ever the eco­no­mic deve­lo­p­ment of the issuer has dete­rio­ra­ted signi­fi­cant­ly during the bond term. In this situa­ti­on it is also not pos­si­ble to refi­nan­ce the “old” bonds by issuing “new” bonds. As soon as it is fore­seeable that it will not be pos­si­ble to rede­em the bonds on time, the issuer has two alter­na­ti­ves: fil­ing for insol­ven­cy or “going to Canos­sa” and asking the bond­hol­ders to post­po­ne the redemp­ti­on of the bonds and, if neces­sa­ry, redu­ce the inte­rest rate. The lat­ter, howe­ver, only beco­mes an alter­na­ti­ve cour­se of action if it can be demons­tra­ted in an inter­sub­jec­tively veri­fia­ble man­ner that the pro­lon­ga­ti­on of the bond term alo­ne or in com­bi­na­ti­on with other rea­li­stic mea­su­res can avert insol­ven­cy due to insol­ven­cy. The issuer must the­r­e­fo­re docu­ment in good time that the post­po­ne­ment of bond redemp­ti­on is essen­ti­al to main­tain sol­ven­cy. If the issuer fails to do so or is unable to pro­vi­de evi­dence of this, and if the matu­ri­ty pro­lon­ga­ti­on comes clo­se to insol­ven­cy, the issuer’s manage­ment may be guil­ty of delay­ing insol­ven­cy. Amend­ment of the bond terms and con­di­ti­ons To extend the bond term and redu­ce the inte­rest rate, the bond terms and con­di­ti­ons must be amen­ded as docu­men­ted in the secu­ri­ties pro­s­pec­tus. Accor­ding to the Ger­man Bond Act, the amend­ment can be made to the joint repre­sen­ta­ti­ve wit­hout excep­ti­on. Pri­va­te bond­hol­ders in par­ti­cu­lar are often not awa­re of this. In con­trast to insol­ven­cy cases, the need for a com­mon repre­sen­ta­ti­ve in bond res­truc­tu­ring must be asses­sed dif­fer­ent­ly. As long as the­re is no doubt about the inte­gri­ty of the issuer and its wil­ling­ness to do ever­y­thing pos­si­ble to ensu­re full repay­ment of the bond, a com­mon repre­sen­ta­ti­ve can be dis­pen­sed with. As an alter­na­ti­ve, a much more cost-effec­ti­ve solu­ti­on would be the vol­un­t­a­ry estab­lish­ment of a cre­di­tors’ com­mit­tee con­sis­ting of a small num­ber of per­sons to accom­pa­ny and moni­tor the eco­no­mic deve­lo­p­ment and the actions of the manage­ment until the end of the bon­d’s term. Con­vening of the cre­di­tors’ mee­ting

Con­vening the cre­di­tors’ mee­ting fol­lows a for­mal pro­cess (§ 9 ff SchVG). A for­mal­ly fla­wed cre­di­tors’ mee­ting can lead to unneces­sa­ry cos­ts and a con­sidera­ble loss of repu­ta­ti­on, as well as to a chall­enge of the reso­lu­ti­ons and thus end­an­ger the exis­tence of the issuer. For this reason, detail­ed time plan­ning and the com­po­si­ti­on of a pro­fes­sio­nal pro­ject team is impe­ra­ti­ve from the out­set. What is nee­ded is a tight pro­ject manage­ment team that con­sis­t­ent­ly moni­tors com­pli­ance and cor­rect imple­men­ta­ti­on of each step of the pro­cess: a com­pe­tent lawy­er, a ser­vice pro­vi­der spe­cia­li­zing in tech­ni­cal imple­men­ta­ti­on and final­ly a com­mu­ni­ca­ti­ons agen­cy expe­ri­en­ced in deal­ing with the finan­cial com­mu­ni­ty and the rele­vant media.……

Column by Dr. Kon­rad Bösl as pdf

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