(The following statement was released by the rating agency)
Link to Fitch Ratings' Report: Comparing Major Bankruptcy and
LONDON/FRANKFURT/NEW YORK, February 13 (Fitch) Fitch Ratings
says in a new
report that losses from the next leveraged finance default cycle
significantly in excess of previous cycles. This reflects
rating mix in bond and loan markets as leverage levels rise and
increasingly lax in both the US and European markets.
"Knowledge of insolvency regimes will be critical to
cross-border investors when
determining recovery and pricing in relative creditor rights,"
Bonelli, Managing Director in US Corporates.
Today's comparative study of insolvency regimes in the US, the
France and Luxembourg reflects strong high yield and leveraged
volumes out of these countries and they represent the mix of
traditions attempting to keep pace with the complexities of
operations and capital flows.
The report describes the traditionally different approaches
between regions and
puts them into the context of the development of capital
markets. While the US
system has historically put much more emphasis on a debtor
framework with the goal to rescue and rehabilitate the
distressed company, the
European systems have the legacy of creditor-in-possession
European regimes assumed debtors and creditors exhausted all
and resulted in liquidation via sale of the company or its
assets as the
principal means of resolving creditor claims.
"In recent years, as European corporate finance has emphasised
US-style capital market products and practices, insolvency laws
amended to include mechanisms that aim to replicate the spirit
of the US Chapter
11 framework, while the specifics continue to differ
Karsten Frankfurth, Senior Director in the EMEA Leveraged
Historically different approaches towards companies in distress
have a profound
impact on the structural developments of capital markets.
rated loan market, minimal covenant-lite loan issuance and
subordinated high yield bonds all reflect the influence of
creditor-in-possession frameworks in contrast to the US.
While there is a general trend towards more rehabilitative
processes in Europe,
substantial differences remain with regard to the application of
competing concepts like priority and prioritisation.
shopping, with the UK Scheme of Arrangement process the
pre-insolvency forum of choice, and ad hoc judicial activism
uncertainty in comparison with established US tenets. While
reforms towards more
accommodative and rehabilitative frameworks develop in Europe a
major review of
US bankruptcy practices is also underway.
In the report, Fitch also provides an overview of the broad
selected processes available in these countries. These are
illustrate how the differences in re-structuring cultures and
influenced the processes available and what they generally mean
and debtors in a distressed situation. Today's report has been
prepared with the
assistance of law-firm TaylorWessing, SheppardMullin and OPF
+1 212 908 0581
Karsten Frankfurth, CFA
+49 69 7680 76125
+44 20 3530 1359
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
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+44 20 3530
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