Financial & Structured Products

Secondary Trading As Usual?

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In a very short time, the COVID-19 pandemic has spread frightening levels of uncertainty all around the world. While many schools, businesses, and houses of worship have closed, the financial markets remain open. Like other markets, the secondary market for syndicated loans has experienced stomach-churning volatility and steep declines in asset prices in recent weeks. If you aren’t thinking about how COVID-19 could affect liquidity and settlements, you should be. Fortunately, the standard trading documents published by the Loan Syndications & Trading Association (the “LSTA”) already contain important concepts and tools aimed at promoting liquidity and pushing trades toward settlement, even during times as uncertain as these.

Click here for a brief refresher on some of the provisions that could prove critical in the months ahead.

Orrick Assists in the Restructuring of Leading French Digital Media Group SoLocal

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Orrick assisted GLAS Trust Corporation Limited in the recent financial restructuring of SoLocal Group S.A., the leading French provider of digital local media and marketing.

The main creditors involved were the lenders of around €835 million in senior secured bank debt and the holders of €350,000,000 8.875% senior secured notes due 2018 (the “Notes”). The restructuring agreed between the company, its shareholders and its creditors involved a partial cash prepayment of debt and a swap for new notes, warrants, convertible notes and equity. Shareholders received three free shares for every two existing ones held. Overall the restructuring resulted in a two-thirds reduction in debt (from €1.158 billion to €398 million) and greatly reduced leverage ratio. READ MORE →

Orrick Ranked Among Top Ten Bankruptcy Law Firms

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The Deal has once again recognized Orrick as a Top Ten Bankruptcy Law Firm in its Q1 2016 Bankruptcy League Tables. After being named to the top ten in each quarter last year, Orrick extended the streak by gaining one spot in the rankings (now #7).

During a busy Q1 period, we advised several clients on a diverse blend of bankruptcy matters, with a particular emphasis in the areas of distressed energy, municipal debt and cross-border restructurings.

The Deal’s Bankruptcy League Tables are the industry’s only league tables focused solely on active bankruptcy cases. These rankings are compiled on a quarterly basis through comprehensive deal intelligence to identify the top law, crisis management, investment, and non-investment firms and professionals involved in bankruptcy transactions throughout the United States.

Litigation Finance: A Brief History of a Growing Industry

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Litigation costs money.

Litigation finance can provide the cash a plaintiff needs to prevail in court. Plaintiffs holding valid—and potentially quite valuable—claims sometimes do not have the resources to initiate a lawsuit or to see one through to a favorable resolution. Rules of professional ethics generally prohibit lawyers from providing clients with financial assistance.  A contingency fee arrangement with a lawyer can help reduce a plaintiff’s out-of-pocket legal costs, but such arrangements are not always feasible. Even when they are, the lawyer may not have enough cash available to fully fund the costs of litigation.

Litigation financing (also known as professional funding, settlement funding, third-party funding, or legal funding) is the process by which plaintiffs can finance their litigation or other legal costs through a third party. This third party provides a nonrecourse cash advance to the plaintiff in exchange for a percentage share of the judgment or settlement. Litigation finance is used to fund all types of cases, including commercial litigation, intellectual property disputes, personal injury cases, class actions, whistleblower suits, and even high-profile divorce cases. And funders invest in early stage cases, cases pending appeal, and even finished cases.

Many investors, including big banks, participate in this sector. There are also firms dedicated solely to investment in litigations. These firms now invest about $1 billion a year, and the industry seems to be growing. Topping $1 Billion Mark, Big Litigation Funder Gets Bigger, Julie Triedman, The Am Law Daily, January 6, 2016. The industry’s largest investor, Chicago-based Gerchen Keller, was formed in 2013 with $100 million in capital and now has more than $1.4 billion in assets under management.  In many ways, the firm operates like a typical hedge fund. It maintains several separate funds that invest private capital in portfolios of assets selected by the firms’ managers. The major difference between it and more traditional hedge funds is that Gerchen Keller invests only in this new asset class—namely, interests in lawsuits.  In addition to investments by big banks and funds, accredited investors with as little as $2,500 to invest can get a piece of the action.  Specifically, LexShares, a crowdsourcing website, matches third-party funders meeting certain qualifications with litigants in need of funding.

The foregoing demonstrates that lawsuit investment is a new and burgeoning asset class. In spite of this, there is no uniform regulation.  Congress and state legislatures are looking to change this situation.

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Orrick Named Top Ten Bankruptcy Law Firm in Every 2015 Quarter

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DealPipelineTablesQ415Once again, Orrick has been ranked a Top Ten Bankruptcy Law Firm by The Deal Pipeline. These rankings are released on a quarterly basis, compiling comprehensive deal intelligence to identify the leading law, crisis management, investment, and non-investment firms and professionals involved in bankruptcy transactions throughout the United States. After cracking the top ten in Q1, Orrick remained among the top ten bankruptcy law firms in every quarter in 2015.

Orrick’s restructuring team enjoyed a busy year, including such recent highlights as representing the City of Stockton in its exit from bankruptcy and dismissal of an appeal filed by holdout creditor Franklin Templeton in the US Bankruptcy Appellate Panel of the Ninth Circuit; Tirreno Power on a complex corporate reorganization including the negotiation and drafting of a €1 billion debt restructuring agreement, which was awarded Restructuring Deal of the Year at the 2016 Legalcommunity Energy Awards; and IFM Investors Pty Ltd, on behalf of IFM Global Infrastructure Fund, in its $5.72 billion acquisition of 100% of the membership interests of ITR Concession Company, which operates and maintains the Indiana Toll Road – named M&A Deal of the Year by ​M&A Advisor.

To see the complete list of rankings, please click here.

Solus v. Perry: Case Update

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Since May, we’ve followed Solus v. Perry, a New York County Supreme Court case originally filed in July of 2012. The case centered around whether Perry entered into a binding oral agreement to sell Solus a participation interest in a $1.6 billion claim against Bernie Madoff’s bankruptcy estate. The parties agreed on a price and some other material terms during a phone call in April of 2012 but never signed a written agreement. In its pleadings, Perry claimed that because its trader noted that the trade was “subject to documentation,” no agreement was ever formed.

Last Monday, the parties filed a stipulation discontinuing the case with prejudice.

During oral arguments on the parties’ summary judgment motions last year, Judge Saliann Scarpulla noted that several issues with meaningful implications for the distressed trading market would need to be resolved before summary judgment could be entered, including: (1) whether there is an industry custom regarding the binding nature of oral contracts for unsecured claim trades; (2) whether an agreement that a trade is subject to documentation means there is no binding contract; and (3) whether the need for consent of a third party means there is no binding contract if such consent is not obtained.

The Solus v. Perry case will not produce an opinion resolving these issues. However, market participants should take note that even in New York, these issues are still considered open questions. Therefore, we reiterate the conclusions from our May article:

  • When possible, get a trade confirmation signed immediately after entering into an oral trade.
  • If an executed trade confirmation is not forthcoming, confirm that your counterparty is familiar with the LSTA standard terms or other relevant industry customs and intends to work within those guidelines.
  • Be proactive any time a counterparty delivers a communication during or after trade time that could be interpreted as evidence that a binding agreement does not already exist.
  • Exercise special care when dealing with counterparties and people with whom you do not typically trade.

Orrick Launches Report on Restructuring European High Yield Bonds

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Over the past few years the European high yield bond market has been on a roll. Issuance has increased, yields have come down and the default rate has been close to zero. Institutional demand for European high yield bonds has been exceptional. Yet a near zero default rate is an historic anomaly which cannot go on forever. What happens when liquidity dries up and issuers default? How should issuers protect themselves and manage creditors threatening to enforce security? What are the key issues for stakeholders to implement a high yield restructuring? How can conflicts of law be managed where the bond is New York law governed, the intercreditor agreement is English law and the guarantors and assets are spread throughout Europe? Drawing on our European and US restructuring experience we address these issues in our report on Restructuring European High Yield Bonds.

If you would like to receive a printed copy of this report, please let us know.

Orrick Ranked Among Top Ten Bankruptcy Law Firms

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2015Q1_250x150_Bnk_COrrick has been ranked a Top Ten Bankruptcy Law Firm by The Deal Pipeline. These rankings are compiled on a quarterly basis through comprehensive deal intelligence to identify the top law, crisis management, investment, and non-investment firms and professionals involved in bankruptcy transactions throughout the United States.

Recent highlights for Orrick’s restructuring team include advising the City of Stockton, California on the confirmation of its chapter 9 plan of adjustment and its successful exit from bankruptcy; representing the bidding lenders in a potential $400 million post-petition DIP financing for the City of Detroit; and advising several of the world’s largest banks in the $6 billion restructuring of the Indiana Toll Road—the largest toll-road debt restructuring to date. For their work on these and other matters, the Orrick team was recognized by Law360 as one of the publication’s Bankruptcy Practice Groups of the Year.

To see the full list of rankings, please click here.

Enforceability of Oral Contracts for Loan and Claim Trades

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The Loan Syndications and Trading Association (the “LSTA”) scored a major victory in 2002 when New York adopted LSTA-sponsored legislation designed to make oral agreements to trade bank loans and claims arising from business debts legally binding. Since then, participants in both the syndicated loan market and the claims trading market have come to rely upon the idea that trades entered over the phone are binding, so long as the parties agreed to the material terms of the trade.

A 2014 Fifth Circuit Court of Appeals decision calls this assumption into question for loan trading, and a case that is currently pending in New York state court could extend the uncertainty to business debt claim trades as well.

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A Stop to PIK Loans from the Court of Milan

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PIK (Payment In Kind) loans are loans that typically do not provide for any cash flows from borrower to lender between the drawdown date and the maturity/refinancing date. In PIK loans, interests generally accrue period after period, thus increasing the underlying principal. As an alternative, PIK Loans may include provisions according to which, upon the occurrence of certain events, interest payments due by the debtor become undue and the corresponding amount is added to the principal amount, so that it generates further interests. This latter type of provisions is usually included in loans granted in the context of restructuring proceedings where the borrower may not always be able to meet, in whole or in part, its obligations to pay the agreed interests as they become due.

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