Pari Passu Clause Meaning
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COMP Operations
EUROPEAN COMMISSION Brussels, 20.02.2013 C (2013) 775 final In the published version of this decision, PUBLIC VERSION some information has been omitted, pursuant to articles 24 and 25 of Council This document is made available for Regulation (EC) No 659/1999 of 22 information purposes only. March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […]. COMP Operations Subject: State aid SA.35956 (2013/C) (ex 2013/NN) (ex 2012/N) – Estonia Rescue aid to Estonian Air Sir, The Commission wishes to inform Estonia that, having examined the information supplied by your authorities on the measures referred to above, it has decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union. 1. PROCEDURE (1) On 3 December 2012, in the context of pre-notification contacts, Estonia submitted to the Commission information on its plans to provide rescue aid in favour of AS Estonian Air (hereinafter "Estonian Air" or "the airline") as well as T.E. hr. Urmas PAET Välisminister Islandi väljak 1 15049 Tallinn ESTONIA Commission européenne, B-1049 Bruxelles – Belgique Europese Commissie, B-1049 Brussel – België Telefon: 00 32 (0) 2 299 11 11. on several capital injections carried out in the past. A meeting with representatives of the Estonian authorities took place on 4 December 2012. (2) Following these pre-notification contacts, by SANI notification number 7853 of 20 December 2012, Estonia notified to the Commission the planned provision of rescue aid to the airline in the form of a loan amounting to EUR 8.3 million. -
In Search of Distress Risk
THE JOURNAL OF FINANCE • VOL. LXIII, NO. 6 • DECEMBER 2008 In Search of Distress Risk JOHN Y. CAMPBELL, JENS HILSCHER, and JAN SZILAGYI∗ ABSTRACT This paper explores the determinants of corporate failure and the pricing of financially distressed stocks whose failure probability, estimated from a dynamic logit model using accounting and market variables, is high. Since 1981, financially distressed stocks have delivered anomalously low returns. They have lower returns but much higher standard deviations, market betas, and loadings on value and small-cap risk factors than stocks with low failure risk. These patterns are more pronounced for stocks with possible informational or arbitrage-related frictions. They are inconsistent with the conjecture that the value and size effects are compensation for the risk of financial distress. THE CONCEPT OF FINANCIAL DISTRESS has been invoked in the asset pricing lit- erature to explain otherwise anomalous patterns in the cross-section of stock returns (Chan and Chen (1991) and Fama and French (1996)). The idea is that certain companies have an elevated probability that they will fail to meet their financial obligations; the stocks of these financially distressed companies tend to move together, so their risk cannot be diversified away; and investors charge a premium for bearing such risk.1 The premium for distress risk may not be cap- tured by the standard Capital Asset Pricing Model (CAPM) if corporate failures ∗ John Y. Campbell is with the Department of Economics, Harvard University and NBER. Jens Hilscher is with the International Business School, Brandeis University. Jan Szilagyi is with Duquesne Capital Management LLC. The views expressed in this paper are those of the authors and do not necessarily represent the views of the authors’ employers. -
Bankrupt Subsidiaries: the Challenges to the Parent of Legal Separation
ERENSFRIEDMAN&MAYERFELD GALLEYSFINAL 1/27/2009 10:25:46 AM BANKRUPT SUBSIDIARIES: THE CHALLENGES TO THE PARENT OF LEGAL SEPARATION ∗ Brad B. Erens ∗∗ Scott J. Friedman ∗∗∗ Kelly M. Mayerfeld The financial distress of a subsidiary can be a difficult event for its parent company. When the subsidiary faces the prospect of a bankruptcy filing, the parent likely will need to address many more issues than simply its lost investment in the subsidiary. Unpaid creditors of the subsidiary instinctively may look to the parent as a target to recover on their claims under any number of legal theories, including piercing the corporate veil, breach of fiduciary duty, and deepening insolvency. The parent also may find that it has exposure to the subsidiary’s creditors under various state and federal statutes, or under contracts among the parties. In addition, untangling the affairs of the parent and subsidiary, if the latter is going to reorganize under chapter 11 and be owned by its creditors, can be difficult. All of these issues may, in fact, lead to financial challenges for the parent itself. Parent companies thus are well advised to consider their potential exposure to a subsidiary’s creditors not only once the subsidiary actually faces financial distress, but well in advance as a matter of prudent corporate planning. If a subsidiary ultimately is forced to file for chapter 11, however, the bankruptcy laws do provide unique procedures to resolve any existing or potential litigation between the parent and the subsidiary’s creditors and to permit the parent to obtain a clean break from the subsidiary’s financial problems. -
Dealing with Secured Lenders1
CHAPTER TWO Dealing with Secured Lenders1 David Hillman2 Mark Shinderman3 Aaron Wernick4 With investors continuing to pursue higher yields, the market for secured debt has experienced a resurgence since the depth of the fi nancial crisis of 2008. For borrowers, the lenders’ willingness to make these loans has translated to increased liquidity and access to capital for numerous purposes, including (i) providing working capital and funding for general corporate purposes; (ii) funding an acquisition-related transaction or a recapitalization of a company’s balance sheet; or (iii) refi nancing a borrower’s existing debt. The increased debt loads may lead to fi nancial distress when a borrower’s business sags, at which point management will typically turn to its secured lenders to begin negotiations on the restructuring of the business’s debt. Consequently, the secured lenders usually take the most active role in monitoring the credit and responding to problems when they fi rst arise. Secured loans come in many different forms and are offered from a range of different investors. The common feature for secured debt is the existence of a lien on all or a portion of the borrower’s assets. Following is a brief overview of the common types of secured lending: Asset-Based Loans. The traditional loan market consisted of an asset based lender (traditionally a bank or commercial fi nancing institution) providing revolving loans, term loans, and letters of credit secured by a fi rst priority lien on accounts receivable, inventory, equipment, and 1. Special thanks to Douglas R. Urquhart and Roshelle Nagar of Weil, Gotshal & Manges, LLP for their contributions to earlier editions of this chapter. -
Overview of the Fdic As Conservator Or Receiver
September 26, 2008 OVERVIEW OF THE FDIC AS CONSERVATOR OR RECEIVER This memorandum is an overview of the receivership and conservatorship authority of the Federal Deposit Insurance Corporation (the “FDIC”). In view of the many and complex specific issues that may arise in this context, this memorandum is necessarily an overview, but it does give particular reference to counterparty issues that might arise in the case of a relatively large complex bank such as a significant regional bank and outlines elements of the FDIC framework which differ from a corporate bankruptcy. This memorandum has three parts: (1) background on the legal framework governing FDIC resolutions, highlighting changes and developments since the 1990s; (2) an outline of six distinctive aspects of the FDIC approach with comparison to the bankruptcy law provisions; and (3) a final section illustrating issues and uncertainties in the FDIC resolutions process through a more detailed review of two examples – treatment of loan securitizations and participations, and standby letters of credit.1 Relevant additional materials include: the pertinent provisions of the Federal Deposit Insurance (the "FDI") Act2 and FDIC rules3, statements of policy4 and advisory opinions;5 the FDIC Resolution Handbook6 which reflects the FDIC's high level description of the receivership process, including a contrast with the bankruptcy framework; recent speeches of FDIC Chairman 1 While not exhaustive, these discussions are meant to be exemplary of the kind of analysis that is appropriate in analyzing any transaction with a bank counterparty. 2 Esp. Section 11 et seq., http://www.fdic.gov/regulations/laws/rules/1000- 1200.html#1000sec.11 3 Esp. -
10.11.3.D Equitable (In)Subordination − Considerations for Sponsors Lending to Portfolio Companies
10.11.3.d Equitable (In)subordination − Considerations for Sponsors Lending to Portfolio Companies By Joe Basile, Ron Landen and Rose Constance of Weil, Gotshal & Manges LLP Private equity sponsors are increasingly providing additional capital to their portfolio companies either to address liquidity issues at those companies or as part of a negotiated debt restructuring. From a sponsor's point of view, it is often preferable to invest that additional capital in the form of debt rather than equity. However, in structuring that transaction sponsors should be aware that the priority of this debt in a portfolio company's capital structure could be attacked by other creditors if that portfolio company ends up in bankruptcy under the theories of equitable subordination or recharacterization. It is important that sponsors structure any such investments to reduce the risk of a successful attack on the priority status of their debt. Equitable Subordination Section 510(c) of the Bankruptcy Code provides that bankruptcy courts may exercise principles of equitable subordination to subordinate all or part of one claim to another claim. Conceptually, this gives the bankruptcy court power to demote a higher priority claim to a lower priority claim under certain circumstances. In some instances, this can convert an otherwise first priority secured claim into a general unsecured claim ranking pari passu with all other general unsecured claims. Although the statutory authority for equitable subordination is clear, the application is not. However, there are some general principles that can be applied as a guide in properly structuring a credit arrangement. Generally, the courts consider three factors in determining whether to equitably subordinate a claim. -
FIN501-10-S3A-VC Term Sheet
BLACK BOX TECHNOLOGY, INC. Term Sheet These terms do not constitute any form of binding contract but rather are solely for the purpose of outlining the principal terms pursuant to which a definitive agreement may ultimately be entered into. Security and Percentage 1,000,000 shares of Series A Convertible Preferred Stock (the of Equity: “Preferred”) at an issue price of $2.00 per share (“Original Purchase Price”). The Preferred is convertible into Common Stock representing [30%-70%] of the outstanding securities of the Company on a fully diluted basis. Valuation: $2,000,000 pre-financing; $4,000,000 post-financing TERMS OF THE PREFERRED STOCK: Rights, Preferences, (1) Dividend Provisions: Privileges and (A) Current Dividend: Dividends shall accrue on each share Restrictions of of the Preferred at the rate of [8%-15%] per annum Preferred Stock: payable quarterly. No dividends shall be paid on the Common Stock until all accrued but unpaid dividends have been paid on the Preferred. (B) Pari Passu Dividend: Preferred shall be entitled to dividends at the same rate as the Company’s Common Stock when and as declared on the Common Stock, based on the number of whole shares of Common Stock into which the Preferred is convertible on the date any dividend is declared. (C) Cumulative Dividend: ISSUES: Dividends shall accrue on each share of Preferred on a • Investor generally wants cumulative basis at the rate of [8%-15%] per annum. some guaranteed rate of Cumulative dividends shall be payable only in the event of return before Common a liquidation, dissolution or winding up of the Company or Stock receives anything - upon redemption. -
Financial Distress in the Life Insurance Industry: an Empirical Examination
FINANCIAL DISTRESS IN THE LIFE INSURANCE INDUSTRY: AN EMPIRICAL EXAMINATION JamesM. Carson, Ph.D. Assistant Professor Department of Finance, Insurance and Law 5480 Illinois State University Normal, IL 61790-5480 U.S.A. Telephone: (309) 438-2968 Fax: (309) 438-5510 The financial condition of life insurers has received widespread public attention in recent years, especially with the failure of two large life insurers, Mutual Benefit Life and Executive Life, both in 1991. Failures of the magnitude of these two insurers and the increased frequency of insolvency suggest that a reexamination of the risk profiles of life insurers is warranted. The goals of the paper are to provide empirical evidence on the strength of three types of bankruptcy detection models and to identify significant variables in the early detection of financially distressed life insurers. The empirical methodologies include multiple discriminant analysis, logistic regression, and recursive partitioning (RP). An application of the RP methodology to insurance data has not been presented in the insurance or finance literature. Several variables and their relationship to the probability of insolvency are examined, including real estate, separate account assets,leverage, premium growth and other variables. The study utilizes data from the National Association of Insurance Commissioners for a sample of insurers that either did (1,380) or did not (40) remain solvent for the years 1990 and 1991. Improvements upon prior research are made in the areasof sample selection and the source of data collection. 1211 Les difficult& financihres dans le secteur de I’assurance vie : Examen empirique James M. Carson, PhD. Departement de finances, d’assurances et de droit 5480 Illinois State University Normal. -
Acquirer Financial Constraints, Takeover Characteristics, and Short-Term Performance of Distressed Target Takeovers
Acquirer Financial Constraints, Takeover Characteristics, and Short‐term Performance of Distressed Target Takeovers University of Amsterdam, Amsterdam Business School Master Thesis June 2015 Student: F. L. Gelens Student number: 10034714 Email: [email protected] Supervisor: dr. V. Vladimirov Faculty: Economics and Business Program: Business Economics, Finance Track Field: Corporate Finance, Mergers & Acquisitions Statement of Originality: This document is written by Student F. L. Gelens who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents. Abstract Many motives for corporate acquisitions have been investigated, however the takeovers of financially distressed targets are less well explored. The papers that investigate distressed target takeovers examine the takeover characteristics and their wealth effects for the target and acquirer shareholders. These papers however, do not investigate the possible influence of acquirer financial constraints on these factors. This study examines whether acquirer financial constraints are related to the premiums, payment method, and short‐term performance of distressed target takeovers. Despite inconsistent findings across the different financial distress measurements used, the results suggest that acquirers of financially distressed targets are more likely to pay with equity, and this likelihood is increased when the acquirer is financially constrained. Additionally, the results of this research suggest that mergers and acquisitions in which distressed targets are combined with a financially unconstrained acquirer, lead to the highest wealth effects for the target company. -
The Anti-Deprivation Rule and the Pari Passu Rule in Insolvency
The Anti-deprivation Rule and the Pari Passu Rule in Insolvency Peter Niven* In 2011 the UK Supreme Court delivered a judgment in Belmont Park Investments Pty v BNY Corporate Trustee Services Ltd that addressed the common law anti-deprivation rule. The anti-deprivation rule is a rule that is aimed at attempts to withdraw an asset on bankruptcy, with the effect that the bankrupt’s estate is reduced in value to the detriment of creditors. The underlying public policy is that parties should not be able to contract to defeat the insolvency laws. The Supreme Court in Belmont recognised, for the first time, that there are two distinct rules arising from that public policy, the anti-deprivation rule and the pari passu rule. The latter rule provides that parties cannot contract out of the statutory provisions for pari passu distribu- tion in bankruptcy. The Supreme Court’s judgment has been applied in a number of cases in the UK.This article examines Belmont and its application in two subsequent cases. 0There is a general principle of public policy that parties cannot contract out of the legislation governing insolvency. From this general principle two sub-rules have emerged: the anti-deprivation rule and the rule that it is contrary to public policy to contract out of pari passu distribution (the pari passu rule). The anti-deprivation rule is a rule of the common law that is aimed at attempts to withdraw an asset on bankruptcy, with the effect that the bankrupt’s estate is reduced in value to the detriment of creditors. -
A Theory of the Regulation of Debtor-In-Possession Financing
Vanderbilt Law Review Volume 46 Issue 4 Issue 4 - May 1993 Article 4 5-1993 A Theory of the Regulation of Debtor-in-Possession Financing George G. Triantis Follow this and additional works at: https://scholarship.law.vanderbilt.edu/vlr Part of the Banking and Finance Law Commons, and the Bankruptcy Law Commons Recommended Citation George G. Triantis, A Theory of the Regulation of Debtor-in-Possession Financing, 46 Vanderbilt Law Review 901 (1993) Available at: https://scholarship.law.vanderbilt.edu/vlr/vol46/iss4/4 This Article is brought to you for free and open access by Scholarship@Vanderbilt Law. It has been accepted for inclusion in Vanderbilt Law Review by an authorized editor of Scholarship@Vanderbilt Law. For more information, please contact [email protected]. A Theory of the Regulation of Debtor-in-Possession Financing George G. Triantis* I. INTRODUCTION .......................................... 901 II. THE REGULATION OF DIP FINANCING UNDER SECTION 364 ........................................ 904 III. FINANCIAL AGENCY PROBLEMS OF INSOLVENT FIRMS AND BANKRUPTCY LAW RESPONSES ............................. 910 IV. A MODEL OF JUDICIAL OVERSIGHT OF FINANCING DECISIONS UNDER SECTION 364 ................................. 918 V. CONCLUSION ............................................... 927 MATHEMATICAL APPENDIX ............................... 929 I. INTRODUCTION The profile of Chapter 11 of the Bankruptcy Code in public con- sciousness has surged recently. Other than the automatic stay on the enforcement of claims,1 the -
Recent Trends in Second Lien Loans
VEDDERPRICE ® Finance and Transactions Group Winter 2008–2009 Special Report “SECOND LIEN” LOANS Executive Summary. During the past few years, the financial markets have enabled borrowers to issue multiple layers of debt in sophisticated fi nancings, particularly in the case of highly leveraged companies. Thus, second lien fi nancing has not only become a recognized part of the capital structure of such fi nancings, but has experienced impressive expansion. The “market” terms that govern the second lien layer of debt evolved in light of increased involvement of nonbank investors (i.e., private equity sponsors, hedge funds, distressed debt funds, etc.). As the continued level of involvement of these nonbank investors remains uncertain and the credit markets tighten, the relationships between senior and junior secured lenders will change and certain provisions not typically found in recent intercreditor agreements may once again surface. This article discusses in detail the recent progression of second lien fi nancing structures and certain relevant intercreditor provisions (including payment subordination, enforcement actions, amendment rights and rights in bankruptcy) that may face increased scrutiny by fi rst lien and second lien lenders alike. WWW.VEDDERPRICE.COM VEDDERPRICE RECENT TRENDS IN SECOND LIEN LOANS Over the past several years, lenders have offered quarterly reviews, between 2003 and 2005, borrowers many alternative fi nancing vehicles as second lien loan volume spiked from $3.1 billion to options for fi nancing their acquisitions, corporate $16.3 billion. By 2006, LCD that reported the restructurings or operations. The creative and volume increased to $28.3 billion; in 2007, the complex fi nancing structures that resulted gave volume grew to nearly $30 billion, with more than rise to many different classes and types of lien 90% of the loans funded during the fi rst three priorities.