Page 36 - CCCA61_2008

CCCA61_044,046,047,053.qxd:CCCA_V1No2_Col-CorpLaw-V1.qxd 02/07/2008 06:21 PM Page 46 Corporate Law Under the microscope Significant changes are expected in the next wave of Canadian corporate restructurings. he next wave of corporate restructur- B and C loans, each with different matu- Changing communications Tings in Canada is likely to see significant rities and rights of repayment), restructur- The wholesale change in the players changes in three principal areas: the nature ings are likely to involve second lien involved in corporate restructurings will and number of players involved, how com- lenders and subordinated debt holders. continue to cause significant changes in the munications with those players will be And that’s just the so-called “funded” debt nature and means by which distressed effected, and the nature of governance holders, never mind the equipment lessors debtors communicate. Face-to-face board- processes for financially troubled businesses. and trade creditors. room meetings among a debtor,its relation- While distressed debtors have been ship lender and their advisors to get a deal Changing players favoured with new sources of liquidity,the done will not be enough.Open forum con- Participants on the credit side of corporate lenders dedicated to providing that liquid- ference calls with large numbers of uniden- restructurings are shifting dramatically in ity may have very different objectives from tified people who are able to easily access, Canada. Understanding who you’re deal- those of a traditional lender. Should the understand and trade on information relat- ing with and their business objectives will business suffer further difficulties, dis- ed to the distressed company, pod casts, and require more of a scan than in previous tressed lenders may effect a “loan to own” virtual data rooms will be required to pro- down credit cycles. Gone are the days strategy whereby they end up owning the vide remote visibility to multiple partici- when a distressed business worked with a equity of the distressed business. pants in the restructuring process. single relationship bank or lender within a The impact of this fundamental shift in This transformation in debtor-creditor syndicate to work out the details of a the nature and number of players involved communications will spawn significant restructuring. Banks routinely sell their in corporate restructurings is compounded investor relations challenges,not the least of loans to secondary market participants (i.e., by enhanced and more robust involvement which are disclosure requirements for pub- private equity, hedge funds and distressed and activist behaviour on the part of lic issuers under securities laws. Debtors investors), which in turn frequently sell organized labour,pensioners,retirees,regu- faced with a vast array of stakeholders may their loans. The criteria for returns and latory authorities and governments.When be required to say the same things to many refinancing debts tend to be very different all of these varied interests are added to the different people at the same time, or to say for secondary market participants than for mix,invoking the old model of a corporate the same things somewhat differently to the traditional relationship lender.To deal debtor doing a restructuring deal with its many different people at the same time with these players effectively, distressed lender or syndicate, and then heading off (given differing objectives and approaches debtors will need to be cognizant of their to court to have the deal implemented to the restructuring).Any and all such dis- differing objectives and expectations and under the Companies’ Creditors Arrangement closure will be subject to the overarching then adopt an approach that is responsive Act, is unlikely to be the only step taken concern of liability for wrongful or inade- to the rights and interests of each. toward a successful restructuring. quate disclosure to secondary market par- Modern debt structures ticipants under securities tend to be more sophisti- laws.This increased burden cated and complex. It for debtors who are public used to be that a single Distressed lenders may effect a issuers will profoundly lender or a limited num- “ affect how such debtors ber of lenders loaned the ‘loan to own’ strategy whereby conduct their businesses debtor funds. Now, along they end up owning the equity of throughout a restructuring. with a senior syndicate the distressed business. ” (which may have differ- ent holders of Tranche A, continued on page 53 46 CCCA Canadian Corporate Counsel Association SPRING 2008