Spotlight

LMEs in European restructurings: local law constraints and evolving market practice

Liability management exercises (LMEs) are reshaping European restructurings by delivering targeted, out-of-court capital structure solutions while avoiding the expense and lengthy timescales of court processes. As US-style techniques proliferate, parties must adapt structures to European jurisdictional constraints including diverse local directors’ duties and insolvency regimes, and where English law-governed documents are present, the Assénagon  abuse of power principle. Recent transactions illustrate emerging market norms and potential litigation flashpoints. In response, creditors are seeking to tighten documentation through LME blockers and deploying co-operation agreements, even as antitrust and enforceability challenges test their limits.

Smart legal opinions, digitalisation and insolvency netting

This Spotlight article discusses the prospect of smart legal opinions by digitalisation and AI. It uses the symbolic example of insolvency set-off and netting to illustrate how the objectives of smart legal opinions could be achieved, what obstacles there are, and what the solutions might be.

The role of financial market infrastructure for stablecoins

This Spotlight article outlines certain roles a financial market infrastructure (FMI) could play in the stablecoin ecosystem and how this may support policy objectives. In particular, we discuss:

• the significance and legal characteristics of stablecoins, focusing on their unique aspects versus other digital settlement assets; 
• the role(s) that an FMI could play in supporting settlements in stablecoins among financial institutions and in managing systemic risks more broadly; and 
• certain legal and regulatory considerations, including to illustrate stablecoin-related activities an FMI may be able to conduct within the scope of existing frameworks and authorisations. 

Digital securities, analog problems: how tokenisation undermines the rights of investors

The intermediated holding of investment securities through tiered custody chains undermines the rights of investors. Distributed ledger technology offers potential solutions through direct investor-issuer connections, but emerging regulatory frameworks paradoxically recreate intermediation while providing weaker safeguards than for traditional securities. This article examines how current legal approaches to tokenised securities risk creating worse outcomes for investors, particularly retail participants.

Taking security over stablecoins

The article discusses the nature of stablecoins, how a lender might take security interests over them and how – and against what assets – that security might be enforced.

Fiduciary law in the Supreme Court: equitable orthodoxy (generally) prevails

The UK Supreme Court in three decisions has clarified key aspects of fiduciary law, encompassing when fiduciary duties will be recognised, how fiduciary law relates to the tort of bribery, the nature of accountability for profits, the nature of the constructive trust and remedies for dishonestly assisting a breach of trust.

Clarity versus confusion in leveraged finance: Part 2

Part 1 of this article, published in last month’s edition of this journal, highlighted the significant uncertainty in the meaning of the contractual terms of large scale leveraged finance transactions. Part 2 of this two-part article explores how the ambiguity and uncertainty in leveraged loan terms is not simply explainable by reference to market conditions; leveraged finance lawyers working in large international law firms in London have played a key role as engineers of this ambiguity. Lawyer activity in this sector is closely connected to the compromised independence of the lawyers who act for the bank lenders, symbolised by the controversial practice of lawyer designation. This compromised independence can in turn be understood as a consequence of the series of law firm and market-based dynamics which are explored in this article. The article also examines how the lawyers who act for private equity sponsors have, in response, engaged in contractual boundary pushing, a key element of which is the retention, insertion and exploitation of ambiguous drafting.

Clarity versus confusion in leveraged finance: Part 1

Drawing on the author’s empirical research, this two-part article zooms in on the significant ambiguity in the language of European leveraged finance contracts, which generates confusion for the parties as to the meaning of key terms. This type of ambiguity also has negative implications for markets. Examples considered in Part 1 of this article include the “J. Crew trap door”, ambiguous permitted indebtedness covenants, and spurious and uncertain add backs to financial covenants. Part 2, to be published next month, explores the role that leveraged finance lawyers working in large international law firms in London played as engineers of this ambiguity.

Preserving guarantor liability: another look

In this Spotlight article, Richard Salter KC takes a further look at how well the sort of Guarantee and Indemnity provisions commonly found in standard LMA-based Facility Agreements are likely to survive changes to the underlying facilities, and considers the implications of the recent decision of the Supreme Court in Cobalt Data Centre 2 LLP v HMRC [2024] UKSC40, [2024] 1 WLR 5213.

Between co-operation and collusion? Liability Management Exercises in Europe

In this Spotlight article the author considers how UK and EU competition law principles might apply to US-style Liability Management Exercises or “co-operation agreements” between creditors and how any competition law risks might be managed.