Insights

• Personal guarantees can be a powerful tool in distressed private credit, particularly in non-sponsor and founder-led transactions where corporate collateral may prove insufficient.
• But their effectiveness in default scenarios depends on a well-designed enforcement plan, emphasizing early asset mapping and cross-border strategies to improve the risk-adjusted recovery outlook.

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• International creditors are facing a shrinking pool of available capital for repayment on their claims in Brazil and Latin America.
• As companies struggle to navigate ever-increasing amounts of debt, there are strategies US dollar noteholders can take to improve their position and fast-track a swift recovery. 

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• The changing business environment has exacerbated financial challenges, eroding asset values, and driven a spike in defaults. Large distressed debt positions cannot always be monetized through consensual restructurings.
• Over the past 24 months, Kobre & Kim has enforced distressed debt, including offshore US dollar bonds, valued at more than US $2 billion in jurisdictions that span Asia, the Middle East, Offshore, North America, and Latin America.
• To successfully monetize credit, it is essential to deploy strategies that leverage a combination of cross-border asset recovery in onshore and offshore jurisdictions, as well as creative out-of-court approaches to facilitate the voluntary resolution of claims.

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• A Kobre & Kim client received a recent ruling by the New York Supreme Court that eases global bondholders’ ability to monetize claims.
• Justice Joel Cohen found Zhu Xinli, the sole director of Huiyuan Juice subsidiary Huiyuan Beijing, personally liable for more than US $114 million. 
• The decision means that bondholders increasingly have monetization options against recalcitrant debtors, including the ability to collect at par from well-heeled decision-makers when the primary obligors may be effectively insolvent, judgment-proof, or even already in bankruptcy proceedings.

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• The ability of bondholders to sue bond issuers to enforce their rights without going through the cumbersome process of instructing a bond trustee has long been in question.
• However, an important ruling in New York court, obtained by Kobre & Kim on behalf of a group of international bondholders, took the first step in establishing standing.
• This decision potentially removes key barriers to enforcement in key offshore jurisdictions such as Cayman and the British Virgin Islands (BVI), as well as Hong Kong.

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• Many Brazilian and Latin American companies that borrow in US dollars are facing a growing mountain of debt.
• As international creditors eye a shrinking pool of capital available for repayment, US dollar noteholders may be left at the back of the line relative to onshore creditors.
• However, there are a number of options at USD noteholders' disposal that could improve their position and increases their chances of recovery.

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• The ability of bondholders to sue bond issuers to enforce their rights without going through the cumbersome process of instructing a bond trustee has long been in question.
• However, an important ruling in New York court, obtained by Kobre & Kim on behalf of a group of international bondholders, took the first step in establishing standing.
• With New York law governing a vast amount of emerging market company debt, this could allow global bondholders to dramatically speed up creditor response times.

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• Sovereign defaults are increasing after recent years of post-pandemic spending, geopolitical risk and climate change.
• This has created opportunities for distressed investors experienced in enforcing against sovereigns.
• Investors can improve the value of their claims by deploying strategies targeting unconventional vulnerabilities around the world.

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• Korean banks are holding an increasing amount of non-performing loans, putting their financial health at risk.
• For many with large portfolios exposed to cross-border unsecured debt and loans to high-yield borrowers, sale and write downs may not be optimal.
• A cross-border strategy to monetize their claims could offer a superior alternative.

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• Distressed debt investors who are beneficial owners or contingent creditors of bonds face uncertainty when bond issuers stop paying.
• Courts in key jurisdictions are beginning to answer the question of whether creditors can wind-up issuers but are offering diverging decisions.
• We explain how a recent ruling in the BVI opens the offshore jurisdiction to creditors considering a cross-border enforcement campaign.

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• Many Chinese debt issuers are still undergoing a wave of defaults, putting offshore general unsecured creditors at risk.
• One way to secure substantial recovery is to enforce keepwell agreements, promises by a PRC onshore parent company to maintain a debt issuer’s liquidity and solvency.
• This can expand the range of enforcement targets, increasing creditors’ options and chances of success.

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• Tightening global credit conditions will put more corporate high-yield debt issuers and private borrowers from emerging markets at risk of default.
• This can spiral into complex cross-border disputes with creditors, threatening the company’s survival.
• Fortunately, there are creative and aggressive strategies available for debtors to limit their exposure and protect their bottom lines.

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• Prices of Russian and other sovereign debt are falling as their economies buckle, presenting both opportunities and challenges for investors.
• Enforcing the debt against sovereign entities is already difficult, more so when sanctions are involved.
• As our Claim Monetization & Dilution team explains, non-traditional strategies may go further in putting maximum pressure on sovereigns and maximizing returns.

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• Mainland China is undergoing a wave of credit defaults, and creditors should use every tool available to maximize recovery.
• Keepwell agreements, a promise by a PRC onshore parent company to maintain an offshore debt issuer’s solvency, is one option for overseas enforcement.
• Creditors can use them to launch a multijurisdictional recovery campaign to drive up pressure on the debtor and reach a near-term settlement.

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• Offshore bondholders of distressed Chinese real estate companies often lack leverage in restructuring negotiations, with those companies’ assets located mostly in China.
• China Evergrande Group is just one of the many Chinese real estate companies teetering on default, with wide-ranging consequences.
• However, by taking deploying creative strategies and taking positions against competing stakeholders, activist bondholders can carve out a direct path to monetization.

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