Debt Restructuring Agreements Research Articles

The Italian Insolvency Law Reform

The Italian insolvency and pre-insolvency frameworks have been reformed recently (2019, due to enter into force in September 2021 but now probably in 2022). This article recalls the intense period of reforms in Italian insolvency law, started in 2005 and culminated with the new ‘Code of enterprise crisis and of insolvency’. The Code introduces new rules for court-confirmed debt restructuring agreements (similar to schemes of arrangement) and judicial composition with creditors, as well as with regard to new rules for insolvency of groups, international jurisdiction and directors’ liability. The article addresses these novelties pointing out some unresolved issues. Finally, the article touches upon the compatibility of the new law with the Directive on restructuring and insolvency (Directive 2019/1023). Autonomy of sport, Private International Law, Public-private Governance, Corruption, Transnational Legal Order, Sports Economy, Legal Status of Sporting Organisations, Audit, Managerial Transparency, Economic Monitoring, International Sporting Convention

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

The Italian insolvency framework makes several restructuring tools available to firms and their creditors, so that distress does not necessarily lead to liquidation. This paper analyses two such instruments: debt restructuring agreements (DRAs) and compositions with creditors (CCs), both commonly used to reorganize distressed firms and preserve their continuity. These procedures typically involve large firms, particularly in the case of DRAs where judicial control over negotiations is milder. Firms using DRAs are in less critical economic conditions when they file for restructuring, but they do so after longer periods of distress. Despite their declared aim, the effectiveness of these instruments in terms of business continuity is limited: many firms that use them end up exiting the market, in particular in DRAs. Firms that survive display only partial recovery, which is relatively more intense in CCs. However, the apparently superior performance of CCs is overshadowed by the long duration of restructuring, which may prevent us from observing definitive outcomes.

The New Italian Legislation on Corporate Governance and Business Crisis. The Impact of Covid – 19 on SMEs and the Recent Rules to Mitigate the Effects

The economic challenges of recent years have been accompanied by numerous and complex economic and social crises, the last of which is caused by the spread of coronavirus COVID-19 – and is convergent in nature, the effects of which are felt in all spheres of society. The COVID-19 pandemic poses serious challenges for politicians and preconditions for an empirical analysis of the direct and indirect consequences of the pandemic for the development of the global economy. As part of the business crisis, Italian legislation is based on the principles of the 2019 EU legal framework, which include legal regulation for the management of economic entities, which allows to anticipate the business crisis, avoiding bankruptcy and improving the market. Legal regulation of the financial crisis contributes to the preservation of production capacity and employment, reduces the possibility of creating non-performing loans, which can negatively affect the balance sheets of banking institutions. A study by the Bank of Italy demonstrates the possibilities of avoiding insolvency if companies anticipate a business crisis by following bankruptcy deflation procedures, such as debt restructuring agreements and agreements with creditors. COVID-19 has led to a significant reduction in world GDP. Governments have different financial means to reduce the negative effects of the pandemic, but all consider the current economic moment exceptional, trying to postpone and mitigate the implementation of bankruptcy of many companies and enterprises in case of failure of legal systems. The results of the study show that the global recession will continue, and no country will avoid strengthening the legal regulation of administrative and accounting management, regardless of the strategy to mitigate the effects of the pandemic. The paper forms the opinion that today’s events require a coordinated multinational political response to the pandemic. Keywords: corporate governance, financial markets.

The Italian Insolvency Law Reform

The Italian insolvency and pre-insolvency frameworks have been reformed recently (2019). This paper recalls the intense period of reforms in Italian insolvency law, started in 2005 and culminated with the new ‘Code of enterprise crisis and of insolvency’. The Code introduces new rules for court-confirmed debt restructuring agreements (similar to schemes of arrangement) and judicial composition with creditors, as well as with regard to new rules for insolvency of groups, international jurisdiction and directors’ liability. The paper addresses these novelties pointing out some unresolved issues. Finally, the paper touches upon the compatibility of the new law with the Directive on restructuring and insolvency.

Pursuing Firm Economic Sustainability through Debt Restructuring Agreements in Italy: An Empirical Analysis

Corporate restructuring has become a central topic for both academics and practitioners, particularly following the global financial crisis. In particular, there is increasing interest in understanding the effectiveness of turnaround strategies, which are defined as attempts to restore the performance of firms after periods of downfall. However, despite the relevance of this issue, there is a shortage of empirical evidence regarding the effectiveness of turnaround strategies related specifically to financial interventions. Through the support of an empirical analysis among Italian firms, this paper seeks to fill this significant gap in the available literature. In particular, we conducted an in-depth analysis of 262 debt restructuring agreement (DRA) plans that occurred between 2005 and 2013 in 16 bankruptcy courts. Our study confirms the positive effect of changes in the top management team. This measure can be both a symbolic signal of genuine willingness to modify the strategy of the firm, and a real manifestation of the necessity to have new skills to complete the turnaround. In addition, the adoption of operational and strategic/asset measures increase the likelihood of turnaround success.

L’Argentine après le défaut : conditions d’accès aux marchés internationaux de capitaux et choix de politiques économiques « non conventionnelles »

Le défaut sur la dette souveraine en 2001 a ouvert pour l’Argentine une période de relations financières complexes avec le reste du monde et riche en changements de politique économique. Raisonnant en termes des déterminants d’offre et de demande de financement externe, cet article montre que l’accès du pays aux marchés internationaux de capitaux a été abordable dans certaines périodes, notamment après la restructuration de la dette en 2005. D’ailleurs certains épisodes de diminution des flux de capitaux entrants nets n’ont pas été dus à des restrictions d’offre mais à une volonté ferme de désendettement des autorités argentines, couplée à la levée de barrières réglementaires. Le renforcement à partir de 2011 de certaines politiques « non conventionnelles », comme la monétisation du déficit et le contrôle des changes, découle certainement de cette pénurie de financement en devises. Or d’autres facteurs plus « structurels » le sous-tendent également : une quête continue d’autonomie dans la politique économique via l’autarcie financière et la « peur » séculaire de dévaluer le peso et de le laisser flotter, de crainte qu’il alimente les anticipations d’inflation. Classification JEL : E58, F30, F32, G01, O54.

Seychelles - Assessment Letter for the African Development Bank

Macroeconomic performance of Seychelles under the Stand-by Arrangement (SBA) has been favorable and the reforms continue to be pursued with a high degree of ownership and broad public support. The liberalization of the exchange regime, a strong fiscal adjustment, and prudent monetary policies have contributed to restoring macroeconomic stability. Program implementation has been exemplary and talks to restructure public external debt are progressing well. A debt restructuring agreement with commercial creditors, on terms comparable to those agreed with Paris Club creditors, is a crucial element in reestablishing a sustainable public debt outlook and supporting economic recovery.

Sovereign debt crises and credit to the private sector

We use micro-level data to analyze emerging markets' private sector access to international debt markets during sovereign debt crises. We find that these crises are systematically accompanied by a decline in foreign credit to domestic private firms, both during debt renegotiations and for over two years after restructuring agreements are reached. This decline is large, statistically significant, and robust. We find that this effect is concentrated in the non-financial sector and is different for firms in the exporting and in the non-exporting sectors. We also find that the magnitude of the effect depends on the type of debt restructuring agreement.

Sovereign Debt Crises and Credit to the Private Sector

Abstract We use micro-level data to analyze emerging markets' private sector access to international debt markets during sovereign debt crises. We find that these crises are systematically accompanied by a decline in foreign credit to domestic private firms, both during debt renegotiations and for over two years after restructuring agreements are reached. This decline is large, statistically significant, and robust. We find that this effect is concentrated in the non-financial sector and is different for firms in the exporting and in the non-exporting sectors. We also find that the magnitude of the effect depends on the type of debt restructuring agreement.

The Timing of Multilateral Lending

Bargaining over the terms of multilateral lending can be a prolonged process. We model failure to come to quick agreement as a screening device. Policy makers who find conditionality especially costly delay to signal their type. We show that increased costs to not reaching agreement, whether borne by borrowers or lenders, can increase the chances of delay. The IMF's high-profile involvement in recent crises in Asia and Russia illustrates the way international lenders and borrower governments delay to extract concessions. Loans from the Fund and other international lenders such as the World Bank and the United States Treasury are accompanied by detailed requirements for policy changes. Borrower countries bargain hard on the package of reform measures they are obliged to adopt and standoffs in negotiations are common. An example is the negotiations between the Fund and the Indonesian government beginning in autumn 1997. The Fund was critical of the Indonesian authorities' failure to carry out a series of detailed structural reforms and hostile to the Suharto government's expressed intention to introduce a currency board. As a banker commented, 'The more you talk about a currency board, the more you delay the debt restructuring agreement.' It was not until April 1998 that an agreement was reached. Indonesia gave up on the currency board and the IMF conceded that the government could continue subsidising food and energy. A problem with the use of strategic delay to extract concessions is that the backdrop to such negotiations is often a worsening economic situation. Postponing agreement can severely exacerbate the costs to both borrowers and lenders if it leads to high inflation, a loss of confidence in the banking system, political backlashes, or contagion. The recent confrontation between Indonesia and the Fund raised the prospect of a break off of negotiations. The Indonesian rupiah fell by 25%, the Jakarta stock market declined by 20%, prices skyrocketed and civil unrest worsened. In this paper, we use bargaining theory to analyse the timing of loan agreements between international lenders and governments in times of possible crises and rising costs of postponement. Our model works as follows. A country approaches international lenders for a loan. The lenders want as much reform as possible. They propose a programme yielding economic benefits to the country that requires some amount of reform as a condition. The country may accept the programme, in which case we suppose reform occurs. Or, it may reject the package, in which case the lenders may revise their proposal.

The valuation effects of the Mexican debt crisis: a re-examination

The valuation effects of the Mexican debt crisis are re-examined in a new way. Instead of concentrating upon the announcement of the Mexican debt moratorium, like some previous work, the valuation effects are investigated for eight major events that occurred over a period of two years, events which characterized the entire crisis. A multivariate regression model is applied to three portfolios of returns: high Mexican debt-exposure banks, low debt-exposure banks, and banks without less developed country (LDC) debt exposure. Significant wealth effects are observed for all three portfolios for various events. There is a significant increase (decrease) in the beta for the high exposure (no exposure) banks subsequent to the announcement of a debt-restructuring agreement between Mexico and its major creditor banks. Similar results are also observed for the residual variance, suggesting that the Mexican debt crisis may have contributed to changes in the risk of high-exposure, low-exposure and no-exposure banks.

Bootstrapping options: An application to recapture clauses

We use bootstrapping to value the recapture clauses in three debt restructuring agreements. The bootstrapping values are between those of the Black, and the Black and Scholes formulas. The main benefit of using bootstrapping is less reliance on an arbitrarily chosen price process.

The 1990 Mexico and Venezuela recapture clauses: An application of average price options

The paper prices contingent contracts and options written on average prices and uses the methodology to value the recapture clauses in the 1990 Mexican and Venezuelan debt restructuring agreements. It is shown that the current values of the recapture clauses are less than one-quarter of the maximum contractually possible and are a concave function of the standard deviation of the oil price. The paper also points out that the benefits of recapture clauses are not only an increased degree of risksharing between countries and creditors, but also a decrease in the likelihood of the debtor to default and an increased incentive to invest and adjust.

Les cadres juridiques de la capitalisation des dettes commerciales des États

SommaireDebt-equity swaps have been a technique used to cope with developing countries’ debt crisis. This type of operation involves various legal techniques. Thus, the national regulation of the creditor institution has an impact on the degree and nature of its participation in debt-equity swaps. These operations should not conflict with the provisions of the syndicated loan or the debt-restructuring agreement. As well, the financial transaction should reflect the constraints inherent in the legal rules governing secondary markets as well as those related to the regulatory scheme set up by the debtor country. This article describes the various legal techniques and shows that international co-operation is necessary to optimize use of debtequity swaps in a strategy aimed at reduction of developing countries’ debt and at their economic growth.

A profile-analytic approach for classifying debt reschedulings in the Asia pacific region

For years, international lenders have looked for new methods for evaluating both the ability and willingness of sovereign borrowers to repay their external debt obligations. This paper presents an application of a classification technique, known as profile-analysis, which might be used as an early warning indicator for the interruption of sovereign debt payments. The potential usefulness of this technique was demonstrated by successfully classifying the Philippines as a candidate for debt rescheduling one year prior to its 1984 debt restructuring agreement. Although preliminary in scope, this study suggests that profile-analysis might be an important supplement in the management of an international loan portfolio.

World Bank: Report on Chilean Debt Conversion, with Chilean Rules on Investments with Foreign Debt Instruments and Provision in a Debt Restructuring Agreement for Such Investments

World Bank: Report on Chilean Debt Conversion, with Chilean Rules on Investments with Foreign Debt Instruments and Provision in a Debt Restructuring Agreement for Such Investments