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Session Summary. Debt Restructuring and Afterlife

February 5, 2010

In the course of the panel the participants ? distressed debt investors and borrowers – discussed issues related to debt restructuring including how the general framework has changed, the peculiarities of Russian-style restructuring, the lessons that borrowers and lenders have learned, and what needs to be done to improve the investment climate in Russia.

The panelists agreed that the recent global financial crisis has changed the perceptions and practices of both investors and borrowers, with divergent views on whether we are now experiencing structural changes in the economy and financial markets (have entered the world of the “new normal”), or whether we have just been through a difficult but classic business cycle. Irrespective of the answer, all agreed that the debt restructuring framework and model is becoming more and more complicated worldwide, including more intricate balance sheet structures, sometimes fraud, multiple jurisdictions, and recovery values starting to go down.

In the Russian context, up to end 2008 it was a borrower’s paradise. Now, companies have to understand that the environment has changed, perhaps permanently, to a more normal situation where money has a real cost. They will need to cope in a more creditor-friendly environment, and incorporate into their business models the cash flow implications of a new paradigm.

Both international lenders and local banks pointed toward weak legal protection of creditors in the country, and many agreed that despite laws being in many cases good on paper, implementation of them is very far from perfect. As a result of this, many investors have to pay more attention to willingness to pay out debt, which is something unusual for advanced economies.

Irrespective of who became the beneficiary of losses in the recent financial crisis, the country in the long run will be the one to lose if steps are not taken to improve the investment climate. Practical advice was offered by Roel Group General Director Vladimir Dorokhin- debt restructuring is like a disease, the faster you call a doctor, the more likely you are to recover and ultimately avoid a trip to the morgue.


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