European restructuring and distressed markets: what happened in 2021, and what to expect in 2022

January 25, 2022
1 minutes

In this article, we summarise key developments in English schemes of arrangement and restructuring plans and consider the equivalents of these tools currently being introduced by EU member states, with a focus on the new frameworks in Germany, the Netherlands, France and Italy. We also look back at European distressed debt, restructuring and leveraged finance trends in 2021 and share our thoughts on potential market developments in 2022.

2021 saw restructuring tools in the UK and across Europe continue to develop.

  • In the UK, 2021 saw the “cross-class cram-down” feature of restructuring plan being utilised for the first time (DeepOcean), and continuing its evolution in the cram-down of dissenting secured creditors (Amicus Finance) and landlords (Virgin Active). We also saw the first court refusal to sanction a restructuring plan (Hurricane Energy). Other developments in schemes of arrangement and restructuring plans have been focused on recognition post-Brexit and on the use of success and work fees, with the English court so far indicating that such fees do not fracture classes of creditors.
  • Across Europe, we have seen EU member states introducing new restructuring tools to facilitate the restructuring of distressed companies and avoid formal insolvency processes. We summarise the tools introduced in Germany, the Netherlands, France and Italy.

Considering the state of play in the market generally, deal flow in European leveraged finance was at near record levels in 2021. Private equity sponsors were at the forefront of a borrower-friendly market, and we saw a number of issuers take advantage of refinancing and dividend recapitalisation opportunities. We also saw a noticeable uptick over the past year in ESG investor mandates and loans with ESG-linked margin ratchets and associated KPIs being used as a means of incentivising improved ESG performance of borrowers while also providing an opportunity to reduce financing costs.

However, the market has not yet witnessed the flow of distressed debt opportunities anticipated as a result of the COVID-19 pandemic. Although there are significant market pressures as we move into 2022, any one of which could trigger increased levels of distress, continued availability of government support and significant liquidity in the market may mean that the early part of 2022 looks very similar to 2021. In the absence of distress, we anticipate a continued refocusing by distressed investors on a broader range of opportunistic investments.

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