Negotiating Emerging Market Debt Restructurings: Recognizing the Warning Signs of a Non-Cooperative Debtor

Negotiating Emerging Market Debt Restructurings: Recognizing the Warning Signs of a Non-Cooperative Debtor

images (3)STEVEN T. KARGMAN
Counsel with the
Export-Import Bank of
the United States in
Washington,DC.
stkargman@aol.com

In recent years,the emerging markets in Asia,Latin America,and elsewhere have witnessed a number of high-profile defaults and restructurings.Some of these defaults have involved outstanding indebtedness on the part of the debtor companies of hundreds of millions of dollars,and in some cases well over a billion dollars.In many cases,for various reasons,including particularly the possible weaknesses of the relevant local insolvency system,the creditors involved in such defaults have attempted to negotiate an out-of-court,“consensual” restructuring with the debtor to resolve the debtor’s financial difficulties.Nonetheless,emerging market out-of-court restructurings can pose unique and daunting challenges for creditors,especially foreign creditors.Among other difficulties,it has not been unusual for a number of these restructurings to drag on for several years without a definitive conclusion.From the creditors’ standpoint,a protracted restructuring process can be particularly costly since there is often a debt service moratorium in place during this process,which may have been unilaterally imposed by the debtor following the original defaults.Therefore,under such circumstances,the majority of the creditors during the period of the restructuring may not be receiving any debt service payments.
In addition,restructurings can involve very significant transaction costs for the creditor institutions involved in the process.First,restructurings may require a substantial investment of staff time for the respective creditor
institutions.

Negotiating Emerging Market Debt Restructurings: Recognizing the Warning Signs of a Non-Cooperative Debtor

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