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…….