The Loan Syndications and Trading Association and The Bond Market Association (BMA) are seeking feedback from bond and loan professionals on a plan that would prevent unnecessary trading restrictions on the claims and equity interests of bankrupt companies.
Currently, trading in debt and equity of some companies can be blocked to prevent the ownership makeup of some bankrupt corporates from changing drastically during the reorganization process. This has occurred for UAL, US Airways and Mirant Corp. where Net Operating Loss (NOL) orders have been entered into that have halted trading. These NOL orders are often more expansive than they need to be, while the market is left in limbo until a final and more limited NOL order is entered into months later.
Under the proposed model NOL order, 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. A draft of what could eventually become a formal proposal has been circulated to debtors' counsel, David added.