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Effect of equitable, contractual and structural subordination

Senior creditors will ensure that in addition to having better security rights over junior creditors, juniors are also subordinated to them, ie the priority of claims against the debtor is changed so that junior creditors creditor agree that their debt will not be paid until debts owed to the senior creditors have been paid.Subordination is also used to ensure that repayments of any intra-group loans rank behind repayments of debt provided by external creditors.Generally creditors closest to the main asset-owning companies (we will refer in this Practice Note to the main-asset owning companies as Opcos, but depending on structuring, this may also be a Propco, for example) exert most control over any restructuring/insolvency, meaning their final dividend is often higher.The three main types of subordination are:•contractual subordination—lending to the same debtor entity•structural subordination—seniors lending to Opcos, juniors lending to Holdcos•equitable subordination—shareholder loans re-characterised as equity; common in the US and parts of Europe, but not recognised in the UKThe common theme is that juniors should not be able to retain...

Basic introduction to super senior, senior, mezzanine and junior debt

Basic introduction to super senior, senior, mezzanine and junior debt The range of funding options open to companies has exploded, resulting in a vast array of different capital and security structures. Before the 2007/8 credit crunch, it was common to see senior debt (usually held by banks), followed by mezzanine debt and then junior debt, all of which ranked above unsecured creditors and shareholders/equity holders. Immediately following the 2007/8 credit crunch, banks were less willing or able to lend new monies and so companies increasingly looked to the capital markets to maximise access to credit. This has resulted in more layers of debt plus the emergence of senior secured bonds, which rank much higher up the capital structure (see Practice Note: Bonds and notes) and super senior facilities. Capital structures Traditionally, external debt was incurred at the operating company (Opco) level; Opcos hold the main assets of the business (eg premises, key manufacturing equipment and valuable IP licences) and generate the bulk of the profits. Accordingly, lenders...

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Would a debt for equity swap be legally and commercially viable where: a) multiple debts are owed to multiple creditors by an OpCo; b) the shares to be issued are shares in TopCo where the TopCo is a UK listed plc? In addition, could TopCo hold shares in treasury to satisfy these debts?

Would a debt for equity swap be legally and commercially viable where: a) multiple debts are owed to multiple creditors by an OpCo; b) the shares to be issued are shares in TopCo where the TopCo is a UK listed plc? In addition, could TopCo hold shares in treasury to satisfy these debts? A debt for equity swap (DES) is a popular restructuring method; financial creditors receive equity in the restructured vehicle in return for reducing or cancelling their debt claims against the company (and the rest of the group). For guidance on DES, see Practice Note: Debt for equity swaps. Can a DES be done for multiple creditors? A DES can be done undertaken for multiple creditors. The difficulties and indeed the complexities of executing a DES have been exacerbated by the increasingly complicated capital structures that have evolved in leveraged transactions since before the financial crisis. The constant layering of debt (there were some 12 layers of debt confronting those involved in the restructuring...

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Corporate weekly highlights—5 June 2025

This week's edition of Corporate weekly highlights includes news of the FCA publishing the UK Stewardship Code 2026, launching of a consultation on the proposed UK version of ISSA 5000 and finalising the amendments to FRS 101, also included is the publication of the new Enforcement Guide by the FCA, the issuing if a joint statement on corporate governance principles by the chairs of eight national corporate governance code institutions and a case considering breach of fiduciary duties and acting in bad faith in a share transfer deal.

EU Competition law—daily round-up (23/04/2025)

A round-up of EU competition law developments, including (amongst other things) (i) the Commission’s decision to fine Apple €500m for breaching its anti-steering obligation under the DMA, (ii) the Commission’s decision to close its investigation into Apple's user choice obligations under the DMA, (iii) the Commission’s decision to issue its preliminary findings in relation to its non-compliance investigation into whether Apple’s new contractual requirements for alternative app distribution breach the DMA, and (iv) the Commission’s decision to fine Meta €200m for breaching the DMA obligation to give consumers the choice of a service that uses less of their personal data.