Morrison Foerster’s MoFo Restructuring Round-Up provides our analysis of the statutory, regulatory, legal and business-related developments in the insolvency and restructuring world. Our goal is to provide timely, helpful, insightful and digestible content that will help you keep abreast of the trends that are shaping the industry.<h2>MORRISON FOERSTER’S BUSINESS RESTRUCTURING & INSOLVENCY GROUP</h2>We counsel clients around the globe on corporate distress. We advise debtors, creditors, creditors’ committees, ad hoc committees, secured lenders, and specialist investors and are confident in advising on significant multi-jurisdictional cases. The breadth of our practice allows us to find solutions for a broad range of participants in distressed markets and to help them find their way through their most complex issues. We are creative, pragmatic problem solvers and we know the restructuring world well.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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The Honorable James M. Peck retired from Morrison Foerster upon his appointment as an International Judge of the Singapore International Commercial Court in January 2024. While at Morrison Foerster, Judge Peck chaired Morrison Foerster’s Cross-Border Restructuring practice and also headed the firm’s Mediation practice. Before joining Morrison Foerster, Judge Peck served as a U.S. Bankruptcy Judge for the Southern District of New York from 2006 to 2014, where he presided over the chapter 11 and SIPA cases of Lehman Brothers and its affiliates and a number of other major chapter 11 and chapter 15 cases and wrote multiple legal decisions that have helped define the impact of safe harbors on qualified financial contracts.By invitation, Judge Peck is a fellow of the American College of Bankruptcy and a member of the Panel of Recognized International Market Experts in Finance. He is a past president of the International Insolvency Institute, served on the board of governors of the National Conference of Bankruptcy Judges, and was judicial chair of the American Bankruptcy Institute’s annual New York City Bankruptcy Conference. Former Judge Peck currently chairs the Business Bankruptcy Advisory Committee for the Southern District of New York.Judge Peck co-chaired the ABI’s Advisory Committee on the Safe Harbors. He is a member of the Advisory Committee of the Asian Business Law Institute, is listed as a qualified member of mediation panels maintained by INSOL International, the Singapore Mediation Center, and the Singapore International Mediation Center, and has been included on the Panel of Arbitrators for Financial Services Disputes of the Hong Kong International Arbitration Center and the Panel of Arbitrators of the Singapore International Arbitration Center.Judge Peck has been retained on a number of occasions to furnish expert witness statements for submission to the High Court in London regarding issues of New York law, comity, and the recognition of main and non-main insolvency proceedings. He is also a frequent speaker worldwide on insolvency issues and has participated as a keynote speaker and a panel chair around the globe in conferences presented by numerous international organizations and law schools. These include INSOL International, the International Bar Association, INSOL Europe, and the National Conference of Bankruptcy Judges. He has authored articles published in the American Bankruptcy Institute Journal and International Insolvency & Restructuring Report, and is an editor of a recently published book titled The Art of the Ad Hoc.Before his judicial appointment in the Southern District of New York, Judge Peck was in private practice for over 35 years, concentrating much of that time on bankruptcy law, business reorganization, and creditors’ rights.

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The Honorable James M. Peck is head of Morrison Foerster’s Cross-Border Restructuring practice. Before joining Morrison & Foerster, former Judge Peck served as a United States Bankruptcy Judge for the Southern District of New York from 2006 to 2014. During his judicial service, former Judge Peck presided over the chapter 11 and SIPA cases of Lehman Brothers and its affiliates and a number of other major chapter 11 and chapter 15 cases. As a judge, he has written multiple legal decisions that have helped to define the impact of the safe harbors on qualified financial contracts.

James Peck

Lorenzo is global co-chair of the firm wide Business Restructuring + Insolvency Group. Lorenzo represents debtors, creditors, and creditors’ committees in complex bankruptcy cases, workouts, and litigation. His cases have spanned the United States as well as countless industries, such as airline and cargo transportation, mortgage origination and servicing, retail, banking and finance, energy, oil and gas, and telecommunications.Lorenzo has represented the official committee of unsecured creditors in numerous recent chapter 11 cases, including Peer Street, Incora/Wesco, Clovis Oncology, Valaris, Windstream Holdings, Inc., Cloud Peak Energy, Westmoreland Coal Company, Inc., The NORDAM Group, Inc., Avaya Inc., Armstrong Energy, Inc., 21st Century Oncology Holdings, Inc., Peabody Energy, Inc., Energy Future Holdings, Corp., and UCI International, Inc.Lorenzo’s deep experience and capabilities advising on precedent-setting bankruptcy and restructuring matters have not gone unnoticed. He is listed as a leading lawyer in Chambers USA and has also been recommended by The Legal 500 US. He was also designated by Turnarounds & Workouts magazine as an Outstanding Restructuring Lawyer for his accomplishments in 2016 and 2017.

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Lorenzo is global co-chair of the firmwide Business Restructuring + Insolvency Group. Lorenzo represents debtors, creditors, and creditors’ committees in complex bankruptcy cases, workouts, and litigation. His cases have spanned the United States as well as countless industries, such as airline and cargo transportation, mortgage origination and servicing, retail, banking and finance, energy, oil and gas, and telecommunications.

Lorenzo is global co-chair of the firmwide Business Restructuring & Insolvency Group. Lorenzo represents debtors, creditors, and creditors’ committees in complex bankruptcy cases, workouts, and litigation. His cases have spanned the United States as well as countless industries, such as airline and cargo transportation, mortgage origination and servicing, retail, banking and finance, energy, oil and gas, and telecommunications.

Lorenzo Marinuzzi

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There has been a series of warnings of an upcoming financial downturn; just too many strains on and impediments to the domestic and global economy, with inflation galloping and interest rates following, it seems – as the markets certainly believe – a downturn is coming or is already here.

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Will Creditors Amend and Extend or Enforce With(out) Remorse? | MoFo Restructuring Round-Up

There has been a series of warnings of an upcoming financial downturn; just too many strains on and impediments to the domestic and global economy, with inflation galloping and interest rates following, it seems – as the markets certainly believe – a downturn is coming or is already here. That is why the financial markets and central banks have responded with equal fear and, and in the case of the central banks, they are deploying or about to deploy their remaining might to avert recession or minimise its effects. And in a financial downturn loans go into default: What will lenders do?RefinancingBefore the global financial crisis in 2007–2008, borrowers typically refinanced their syndicated facilities a couple of years before maturity. There was significant liquidity available and low interest rates (i.e., cheap credit). While the financial crisis caused a significant amount of company collapses (affecting smaller companies more than larger ones) a lot of companies survived the financial crisis. This was in the face of the level of leveraged loans made between 2005 and 2007, which led to a “refinancing wall”, a wave of maturities falling due between 2012 and 2014. Lenders were unwilling to enter into new facilities but they were also pessimistic about the likely returns from an immediate insolvency process or enforcement. This led to a ubiquitous approach or strategy.Amend and extendAs an alternative to refinancing, many lenders were ready to “amend and extend” their facilities for a higher margin, additional fees, and, in some cases, the amendment of financial covenants. With an abundance of easy credit and a belief that asset values would rise year on year, which has at least been the case until recently, what was to be lost by postponing default? Hence the “amend and extend” deal, also waggishly called, not inaccurately, a “pray and delay”, became common.The amendment of U.S. loan agreements typically required lower levels of consent (majority consent plus the consent of the extending lenders) than UK or European loan agreements. Many UK and European loan agreements required unanimous consent, or super-majority consent, to amend and extend, particularly in the case of investment grade loans. So getting lender consent could be difficult. In some loan agreements there were facility change mechanisms allowing an existing tranche of debt to be increased or an additional tranche to be added. A borrower wishing to amend and extend its facility using the facility change mechanism would usually require consent from each extending lender, in addition to the majority of lenders (being 66 ⅔ percent) or a greater percentage as set out in the loan agreement. Interestingly, the level of consent required in UK and European loan agreements now often falls within a range which is lower than it used to be 15 years ago.Liquidity is now tightening, and while there is no refinancing wall that is equivalent to the one overcome a decade ago, it is becoming more costly to refinance. Particularly in leveraged credits, lenders are becoming less willing to form a view of where a leveraged borrower may be in the coming years, that its assets will be worth more and accordingly the option to amend and extend is less likely to be offered. Notably, amend and extend activity in Europe decreased in FY21, with 137 deals, in comparison to FY20, which saw 159 deals.Current market sentiment – are we reaching tipping point?With interest rates and inflation increasing, it is becoming more expensive to refinance and to service debt. Lenders will be carefully considering both the creditworthiness of a borrower and whether its business is sufficiently resilient to tackle troubling times. Lenders can no longer have confidence that the value of the borrower and its assets will continue to rise. Understandably, there is hesitation to lend. A debtor company should be considering whether it can afford to borrow based on the margin it must pay. As a response to distress and over-leverage problems, “amend and extend” had a data based rationalisation, yet it was still too much like the panglossian philosophy of Charles Dickens’ Mr Micawber when facing bankruptcy that “something will turn up”.

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