The Bond Market Association is seeking feedback from fixed-income industry professionals on a plan that would allow trading in bonds of bankrupt companies. Currently, trading in debt and equity of some companies is prohibited to prevent the ownership makeup of some bankrupt corporates from changing drastically during the reorganization process. Yet under the BMA's model net operating loss order, or NOL, which derives its name from the tax credits that a given company would preserve under the plan, distressed players could trade a bankrupt company's debt and equity even into the bankruptcy process. "The model NOL order allows trading to continue as long as it does not substantially change the ownership structure of the company," said Michele David, v.p. and assistant general counsel at the BMA in New York. Bankruptcy courts have often stopped trading in order to uphold the firm's ownership structure, she noted.
A draft of what could eventually become a formal proposal has been circulated to debtors' counsel, David added. International Revenue Service regulations currently prevent a bankrupt company from retaining its tax credits in the event of a significant change in ownership, which in some instances has led to a freeze on trading, she said. The BMA worked with The Loan Syndications and Trading Association on developing the draft.