Holders of bonds issued by companies that are distressed, insolvent or undergoing a restructuring need to get more proactive in order to maximize value, Bill Derrough, managing director at Jefferies & Co., told delegates.
The days of passively waiting for a bank to unveil its restructuring plan for creditor approval have passed, Derrough says. "The best way to maximize value is for bondholders to get a seat at the [restructuring] table," he adds.
Several factors, however, may complicate this process. For example, banks are finding it increasingly difficult to avoid conflicts of interest when dealing with restructurings because they often also have equity positions in the company, notes Rüdi von Eisenhart-Rothe, former chief executive of Chase Bank in Germany. In addition, the development of the secondary market for bank debt has muddied the waters as it is no longer clear whether a bank creditor still holds loans it made to the restructuring company. The development of the credit derivatives market also makes it harder for bond holders to determine the position and interests of a creditor bank, adds Robin Parsons, a partner at Sidley Austin Brown & Wood.
A further complicating factor for bondholders is the emergence of aggressive vulture funds that look to snap up distressed bonds in order to take control and asset strip a company. In the event that a vulture fund buys a controlling stake "it's probably not going to be a good day for you," Jefferies' Derrough continues.
