The Bond Market Association and the Loan Syndications and Trading Association are encouraging participants in the secondary debt markets to adopt new standards for trading the debt and equity of bankrupt issuers. "We're hoping it is used on a case-by-case basis in the context of actual bankruptcy cases as a standard model," said Jane Summers, general counsel of the LSTA, adding debtors and creditors have agreed on the new standard.
The standard, known as the model net operating loss (NOL) order, derives its name from the tax credits that a given bankrupt company would preserve under the plan. Under the new order, distressed investors can trade the debt or equity of a company with the written permission of the company providing there is no substantial change in the ownership of a company. The need for such an order arose because bankruptcy courts in recent proceedings have frequently halted trading in some firms' debt and equity in order to maintain ownership structures.
TBMA and its loan market counterpart sought feedback on its draft of the model NOL order this summer from debtor's counsel and fixed-income market participants (BW, 8/16). Summers said the debtor's counsel asked to soften the standard a bankrupt company would have to meet at the end of its bankruptcy to show trading restrictions had been necessary in order for tax credits to be preserved. "The standard was changed from showing an absolute requirement, to showing in the final order only a reasonable probability that [the trading restrictions] were necessary," she said.