We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
29 April 2021
Jersey continues to be the offshore jurisdiction of choice for restructurings involving debt for equity swaps (particularly restructurings of UK and international corporate groups). But what makes Jersey so attractive for this type of transaction?
A borrower group that is overleveraged and in financial difficulty, but ultimately deemed to be a viable going concern, might be suited to a debt for equity swap. This involves restructuring both the borrower's debts and capital structure. Creditors (which may comprise banks, bondholders or other types of creditor) may find a debt for equity swap appealing if faced with the alternative of seeking to recover existing debt, particularly if that might lead to insolvency.
Restructuring transactions commonly involve the incorporation of one or more holding companies at the top of the borrower's corporate group. Creditors are issued shares in the new holding company at the top of the structure in exchange for a reduction in the existing debt obligations of the borrower group. This is usually combined with amendments to existing finance documents and may involve a bond exchange offer or other issue of securities in favour of the creditors. This could be done as part of a consensual restructuring transaction or pursuant to a court-approved scheme of arrangement or UK restructuring plan.
Jersey has seen numerous high-profile restructurings recently, including those involving Pizza Express, Travelex, Tunstall Healthcare and KCA Deutag. Fat Face and Survitec have also used Jersey structures during their well-publicised restructurings.
The benefits of using a Jersey company, in terms of company law provisions and tax treatment, are wide but generally include:
The Companies (Jersey) Law 1991 enables capital to be denominated in any currency and share capital of either par value or no par value shares to be issued in various classes, including redeemable shares. The structure and constitution of a Jersey company is similar to that of an English company and therefore provides familiarity to debtors, creditors and their advisers looking for a suitable jurisdiction to facilitate restructurings involving debt for equity swaps.
Jersey's tax neutral environment – pursuant to which a creditor will, in general terms, not be subject to tax in Jersey on distributions or interest payments by the newly incorporated Jersey company or stamp duty or other tax upon transfer of the shares or securities – makes it appealing for this reason alone, although each party will need to consider its individual circumstances.
The rise in debt for equity swaps where bondholders have used a new Jersey-incorporated holding company is notable and no doubt driven in part by the current economic climate. The increasing trend of alternative lenders participating in finance and restructuring transactions where they may hold equity and debt interests in the same structure has also been a feature of this area.
The following questions should be asked in respect of a new Jersey holding company:
Restructuring activity has increased significantly in the past 12 months. Although restructurings are taking place across a range of sectors, retail, food and beverage, transport and oil and gas restructurings have been a consistent theme. There is likely to be increasing pressure on overleveraged borrower groups to enter into restructuring transactions in 2021, particularly as UK government support for various businesses gradually abates.
With the current economic climate (and given the range of enforcement options available to creditors), the trend of new Jersey holding companies being incorporated for debt for equity swap transactions is expected to continue in 2021 as this structure becomes increasingly familiar to creditors and a market standard for UK and international restructuring transactions.
For further information on this topic please contact Bruce MacNeil or James Lydeard at Ogier by telephone (+44 1534 514394) or email (firstname.lastname@example.org or email@example.com). The Ogier website can be accessed at www.ogier.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.