Kitno
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| Total Posts: 146 |
| Joined: Mar 2005 |
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I had a conversation with a lay (not in the City) lawyer today who said that stating "senior, unsecured" in a loan agreement meant nothing in English law.
What I trade has no meaning!
Seriously, under English law I am assuming the Bankruptcy Act carries creditor rankings in the event of default or is this a civil law issue? There's ISDA too, but what for specific English law? Either way what he said is surely wrong. |
"Gentlemen, will you please decimate the bids?" |
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The words may mean nothing during a lawsuit, but I would assume the payout structure that you agree to does. If you agree to not get paid until a more senior claim does, then you cannot claim default unless a less senior claim gets paid before you.
On default, however, it's all meaningless as the amount you get paid is more about the agreements/auctions. More senior claimants may hold a larger quantity of less senior claims, and therefore wish the less senior claims to be paid more per par value. If I hold $1 par senior claim and $100 par subordinate claims, I'll agree to get $0.90/par on the subordinate and $0.70/par on the senior claim. That negotiation means more during bankruptcy / default.
This is just based on what I've read on FT, the credit guys here will know more. |
in the words of one such quant ‘were on the whole either less quanted or
not quanted at all’. |
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Kitno
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| Total Posts: 146 |
| Joined: Mar 2005 |
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It was just a chat with a friend and I was a bit shocked when he said that "it means nothing in law".
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"Gentlemen, will you please decimate the bids?" |
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For a real world example, look at the Indian Foreign Currency Convertible Market in 2009. The world owned what they thought was senior unsecured paper, only to find that the Indian courts ruled in favour of local banks. This de facto made a mockery of the bonds senior unsecured status.
At the time, it was felt that the Indian banks and issuers had got one over on the investing public, but interestingly now there is a refinance overhang, with the issuers looking at potential defaults. Investors who might in the past have bailed them out are once bitten twice shy. |
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KangaXX
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| Total Posts: 278 |
| Joined: Mar 2005 |
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It depends on the jurisdiction of bankruptcy and possibly on the law of the obligations.
Off the top of my head I dont think senior/sub are concepts under english law, but the bond documentation and intercreditor agreement would be used to effect the subordination ie the subordination is, at a minimum, contractual. |
Bright, energetic people—usually
quite young—have promised to perform miracles with “other
people’s money” since time immemorial. |
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