US Law Firms Bring Distressed Debt Swap Playbook to Europe

US law firms are increasingly deploying distressed debt swap strategies, which often involve pitting creditors against each other, into the European market. According to Gibson Dunn & Crutcher's Scott Greenberg, this trend is driven by the same legal and banking professionals applying successful US playbooks, signaling an anticipated rise in complex and potentially contentious distressed debt deals across Europe.

Analysis

A significant tactical shift is emerging in the European distressed debt market, characterized by the adoption of aggressive, US-style restructuring strategies. According to Gibson Dunn & Crutcher, the trend is driven by US-based law firms and financial advisors being hired for European engagements and subsequently deploying their established "playbook." These strategies often involve liability management exercises that can pit different creditor groups against each other. The commentary from the firm's global chair of restructuring, Scott Greenberg, suggests this is not an isolated phenomenon but rather the beginning of a broader rollout of proven, albeit more contentious, methods for handling corporate distress. This development signals a move towards more complex and potentially litigious restructuring processes in Europe, mirroring the landscape that has been prevalent in the United States.

Key Decisions for Investors

• Investors holding European corporate credit, especially in highly leveraged companies, should re-evaluate their positions for vulnerability to aggressive liability management exercises that could subordinate existing creditors.
• A heightened focus on scrutinizing bond indentures and covenants is now crucial, as these legal terms will become the primary battleground in the anticipated US-style creditor-on-creditor conflicts.
• Consider allocating to distressed debt funds with demonstrated expertise in complex US restructurings, as they may be better positioned to navigate or capitalize on the increasing complexity and litigious nature of the European market.