project finance restructurings and corporate debt … · 2020-01-28 · project finance...

WINTER 2003 THE JOURNAL OF STRUCTURED AND PROJECT FINANCE 35

The views expressed in this article are solely the per-sonal views of the author and do not necessarily rep-resent the views of the Export-Import Bank or theU.S. Government.

Restructuring activity in the emerg-ing markets has been increasingsharply in recent years. In theimmediate aftermath of the Asian

financial crisis and in the years since, there havebeen a number of high-profile corporate debtrestructurings in the emerging markets and sev-eral of them have involved outstanding debtamounts of more than $1 billion—in some casessignificantly more. During the same period,there also have been many significant projectfinance restructurings in the emerging markets,particularly in several Asian countries such asIndonesia, Pakistan, and elsewhere.

Nonetheless, project finance and corpo-rate debt restructurings in the emerging marketsare not often considered to be similar under-takings. From a lender’s perspective, corporateand project finance restructurings would appearto address very different financing structures.Creditors who have loaned against the balancesheet of a going concern would appear to be ina very different situation from those who haveloaned against prospective cash flows from whatmay be a single asset or discrete set of assets heldby a special purpose vehicle that was created forthe given project finance transaction (i.e., it hasno prior operating history).1 Moreover, it is onething to make a corporate loan to a company

that has many customers, perhaps several linesof business, and possibly certain assets that canbe sold off if the need arises. It is quite anotherthing to lend into a project finance transactionwhere the project may have only one customer,such as a government-owned offtaker, andwhere the project cannot change its line of busi-ness or the location of its assets—the so-called“stranded asset” problem.

However, while there may be many con-trasts between project finance restructurings onthe one hand and corporate debt restructur-ings on the other hand, there are also manycommonalities. In this article, we will compareand contrast these two types of restructuringsin the emerging market context. In consider-ing project finance restructurings, it should benoted that we will focus on the power sectorin particular and will use the restructuring ofindependent power producers (IPPs) based onlong-term power purchase agreements (PPAs)as a paradigmatic example. Of course, therehave been many other types of important project finance restructurings in diverse sectorssuch as telecommunications, transportation, andinfrastructure, and it is certainly recognized thatrestructurings in these sectors may yield theirown valuable lessons. But these other types ofrestructurings are beyond the scope of this arti-cle. In addition, even within the power sector,there are IPPs that are based on the “merchantpower” model (i.e., the power is sold into acompetitive market rather than sold pursuant tolong-term purchase contracts) as opposed to

Project Finance Restructurings andCorporate Debt Restructurings inthe Emerging Markets:A Comparative OverviewSTEVEN T. KARGMAN

STEVEN T. KARGMAN

is counsel with theExport-Import Bank of the United States in Washington, DC.

This article originally appeared in the Winter 2003 issue of The Journal of Structured and Project Finance and is reprinted with permission from Institutional Investor, Inc.For more information please visit www.iijspf.com

© International Insolvency Institute - www.iiiglobal.org

the PPA model. Furthermore, in considering corporatedebt restructurings in these markets, we will focus on so-called out-of-court, “consensual” restructurings as opposedto reorganizations within the judicial context.

Restructurings in the emerging markets can posemany unique challenges. In corporate restructurings, thefundamental challenge generally is the issue of how to getthe debtor to begin re-servicing its debt pursuant to aconsensual restructuring plan when, by virtue of the localinsolvency law and local legal framework, there possiblymay be limited incentive for the debtor to reach a promptor fair restructuring with its creditors. By contrast, in theproject finance restructuring context, the fundamentalchallenge may center on how to get the government-owned offtaker to enter into a revised long-term tariffwith the affected project when, among other difficulties,demand for the project’s output may be severely depresseddue to a systemic financial or economic crisis, when thelocal currency may have been devalued (thus making tar-iff payments indexed to a foreign currency more expen-sive), and when the transmission infrastructure may beonly partially constructed.

CONTRASTS BETWEEN CORPORATE ANDPROJECT FINANCE RESTRUCTURINGS INTHE EMERGING MARKETS

Timing Expectations

In corporate restructurings in the emerging markets,at the outset of the process, the parties, particularly thecreditors, may believe they are about to embark on a rel-atively short-term exercise, one that perhaps can be con-cluded within, say, a period of one to two years. Althoughthe creditors may understand intuitively that the process willnot proceed as rapidly as it would in the United States orin other advanced, OECD-type economies, creditorsnonetheless may have the attitude, “What can be so hard?We’ll do our due diligence on the debtor, develop somecash flow scenarios, put together a restructuring proposal,negotiate with the debtor, and then get the proposalapproved by the creditors.”

By contrast, in project finance restructurings in theemerging markets, the parties may be relatively resignedto the fact that the restructuring will be a long-term pro-cess. In these restructurings, the parties may expect therestructuring process to last easily for a few years. Theymay come to this recognition based on the multiplicityof parties that are involved in a project finance restruc-

turing, the array of project documents that may be impli-cated, and the complexity of project arrangements. Inaddition, the parties may realize that the structure of inter-creditor arrangements, with their highly specific votingrequirements among the different creditor constituencies,will not necessarily lead to a prompt resolution of out-standing issues,2 and that the involvement of governmentalentities in the host country and the related political con-siderations also may serve to prolong the process.

Notwithstanding these conflicting timing expecta-tions, both corporate and project finance restructurings canin fact turn into lengthy, protracted affairs. It is not unusualfor large, complex corporate debt restructurings in theemerging markets to last several years. In certain cases,debtors have been known to use deliberate delaying tacticsto prolong the process. Thus, specific phases and milestonesof the restructuring process that may seem as if they shouldbe relatively straightforward and not particularly time-con-suming—for example, entering into confidentiality agree-ments with the debtor or performing due diligence on thedebtor—can take much longer than might seem normal orreasonable. A debtor in an emerging market may use itslocal influence and other forms of leverage to delay the pro-cess. As the World Bank stated in a 2000 draft consultationreport on insolvency law reform, “With little or no credi-tor protections and weak enforcement rights, managementfor financially distressed or willfully defaulting enterpriseshave no credible threat to compel them to negotiate oncommercially reasonable terms.”3

Even if the parties to a projectfinance restructuring may expecta lengthy process that will last a

few years, they still may not fullyexpect and be prepared for someof the delays that inevitably arise.

Project finance restructurings in the emerging mar-kets may take several years as well. Even if the parties to aproject finance restructuring may expect a lengthy processthat will last a few years, they still may not fully expect andbe prepared for some of the delays that inevitably arise.For example, they may not be prepared for the delays thatmight arise when they attempt to negotiate revised tariffarrangements with host government parties such as the rel-

36 PROJECT FINANCE RESTRUCTURINGS AND CORPORATE DEBT RESTRUCTURINGS IN THE EMERGING MARKETS WINTER 2003



evant government ministries and state-owned utilities. Suchnegotiations do not necessarily proceed according to a strictcommercial logic and tempo, but may be significantly influ-enced by the political rhythm of events in the host coun-try. Even if the project and other key project parties realizethat there will be many elements that may comprise anoverall project finance restructuring, they also may notfully anticipate some of the delays in reaching new, revisedproject arrangements among the diverse group of projectparties. Such new arrangements may pertain, for example,to a restructuring of the project’s outstanding debt or arationalization of certain project arrangements such as thoserelating to the supply of the project’s raw material inputs.

Central Negotiating Dynamic

In a number of corporate debt restructurings in theemerging markets, the central negotiating dynamic mayrevolve around the interaction between the controllingshareholder of the debtor, on the one hand, and the cred-itors, on the other hand. The controlling shareholders,who may hold a controlling equity stake in the debtorand also may occupy some of the key management posi-tions of the debtor, can be a powerful force to reckonwith in many emerging market debt restructurings. Inparticular, the controlling shareholders may representinfluential family interests in the local society, which inturn may affect their eagerness or willingness to reach atimely and/or fair settlement with their creditors. Theymay believe they have limited incentive to reach a dealwith their creditors, particularly if there are many foreigncreditors involved in the restructuring. However, it shouldbe noted that it is not just foreign creditors who may bedisadvantaged by this view on the part of certain con-trolling shareholders; it is possible that certain significantlocal creditors also may be similarly disadvantaged. (Tobe sure, in some emerging market debt restructurings,certain local creditors, for one reason or another, mayend up receiving preferential treatment.)

In project finance restructurings, the central nego-tiating dynamic may involve the government-owned off-taker negotiating with the project. (There may be othergovernment entities that are project parties and thereforemay be involved in restructuring negotiations, such as agovernment-owned fuel supplier.) Given the central posi-tion of the government-owned offtaker in the restruc-turing process, political issues broadly defined may assumea salient role. Government actors may strive to remainfocused on how the public will react to changes flowing

out of the restructuring process, such as how the revisedtariff level charged by the project ultimately may affectretail tariffs that consumers will have to pay. As a result ofincreases in tariffs charged by IPPs as well as other fac-tors, the host government may consider the need to raiseretail tariffs. But the decision to raise retail tariffs canbecome a highly charged political matter, and host gov-ernments may proceed cautiously on this front.

In light of this possible political element in the restruc-turing process, project parties are often well advised tounderstand the dynamics within the relevant individualgovernment ministries and among such government min-istries. Such ministries might include, among others, aministry of finance, a ministry with responsibility for issuesrelating to mines, energy, and natural resources, a ministrywith responsibility for state-owned enterprises, and a min-istry of foreign affairs. Within some of these governmentministries, there may be individual bureaus and branchesthat play an influential role in the restructuring process. Incertain cases, some of the bureaus and branches within aparticular ministry may take different and/or opposingviews and approaches to the relevant restructuring issuesfrom other bureaus and branches within the same min-istry. Thus, the project parties need to understand that theindividual bureaucracies with which they are dealing maynot necessarily be monolithic in their internal views onthe relevant restructuring issues.

The project parties also may be interested in tryingto understand and appreciate how the political leaders inthe executive branch of the host government view theissues implicated by IPP restructurings. For example, it isnot inconceivable that at a certain point in the processthe political leadership within the executive branch of thehost government ultimately may become involved in giv-ing important direction to the relevant ministries, partic-ularly if the restructuring issues involve high-profileprojects within the host country or if these issues havebroad policy and/or political ramifications for the hostcountry. In addition to considering the views of the exec-utive branch, the project parties also may seek to under-stand how the national legislature views such issues,particularly where the legislature is playing a more activerole in some of the so-called “emerging democracies.”

In a federal government structure, the project partiesalso want to understand how the relevant state govern-ment, which may have direct jurisdiction over the projectthrough a body such as a local electricity board, views theissues and how the state government interacts with the fed-eral government on these issues. The views and policy




positions of the federal and state government may not nec-essarily be congruent, and this can become an even morecomplicated dynamic where the federal and relevant stategovernment are controlled by opposing political parties.

The views and policy positions ofthe federal and state governmentmay not necessarily be congruent,

and this can become an evenmore complicated dynamic where

the federal and relevant stategovernment are controlled by

opposing political parties.

Unlike project finance restructurings, corporate debtrestructurings in the emerging markets typically involve lessof an active and prominent role for the host government.The host government may well take the view that since therestructuring involves a private sector credit, the governmentshould take a “hands-off ” approach and leave it to the pri-vate parties, namely the creditors and the debtor, to workout their differences and reach a fair settlement. Nonethe-less, in certain large-scale, private sector restructurings, thehost government may become involved in the restructur-ing for specific reasons. For one thing, the governmenteffectively may be, directly or indirectly, a creditor to theaffected company through certain government-ownedinstrumentalities, such as government-owned developmentbanks or through so-called “asset management companies”that take over failed banks in the host country.4

In other cases, host governments may becomeinvolved in major international debt restructurings becauseof broader policy interests. For instance, the host govern-ment may consider becoming involved if the governmentbelieves that the restructuring is sufficiently high-profile(e.g., it is the subject of extensive coverage in the interna-tional financial press or it involves a number of major inter-national financial institutions). The host government alsomay consider becoming involved if it believes that the fail-ure to achieve a successful debt restructuring in a particu-lar case may have an effect on the overall perception offoreign investors with respect to the attractiveness of mak-ing future investments in the host country.

Fundamental Economic Issue

In corporate restructurings, one of the fundamentaleconomic issues centers on what is the level of “sustain-able debt,” i.e., the level of debt that the company cancomfortably service on a going forward basis. In generalterms, determining the level of sustainable debt is not nec-essarily an exact science but instead may depend on a num-ber of financial assumptions. However, once the partiesagree on the level of sustainable debt or at least agree on acompromise figure in this regard, they then can focus onthe how the company’s balance sheet needs to be restruc-tured in order to fit the debtor’s outstanding debt withinthose sustainable debt limits. If the company’s outstandingdebt exceeds its sustainable debt, the company and its cred-itors will have to decide what to do with the company’sso-called “unsustainable” debt, i.e., whether, as more fullydiscussed below, there should be debt write-offs, debt-for-equity swaps, and so forth.

In project finance restructurings, the critical eco-nomic issue may center on what is to be the level of therevised long-term tariff between the project and the off-taker. Nonetheless, this is not necessarily solely a financialor economic issue. As noted in the author’s prior article inthis journal (“Restructuring Troubled Power Projects in theEmerging Markets,” The Journal of Structured and ProjectFinance, Summer 2002), the government-owned offtakerin particular may focus on what constitutes an “affordabletariff,” i.e., a tariff that the public in the host country ulti-mately can afford. Thus, to the extent that the new long-term tariff must represent an “affordable tariff,” this issuemay take on significant political and social overtones, par-ticularly given the role of electricity in everyday life andthe visibility to the public of retail tariff changes.

Standstills

In corporate restructurings, a debt standstill or debtservice moratorium may be imposed or declared unilat-erally by the debtor. This is particularly true with a debtrestructuring involving a multitude of creditors since it maysimply be impractical for the debtor to negotiate a vol-untary, contractual standstill with all, or even most, of itscreditors. There may be too many creditors and theremay not be enough time to do so if the debtor’s financialsituation is deteriorating rapidly. In some cases where thedebtor is seeking to set the proper atmosphere for theforthcoming debt restructuring exercise, it neverthelessmay seek to advise the creditor body in advance that it




will be imposing a debt standstill. In other cases, whetherby design or poor planning (neither of which necessarilywill build much goodwill with the creditor body), thedebtor may simply announce a debt standstill without anyprior notice to the creditor body.

Nonetheless, whether there is advance notice ornot, the creditors may not feel bound to observe theterms of a debt standstill if it has been essentially unilat-erally imposed. But many creditors may observe thestandstill since they may see certain advantages in tem-porarily relieving the debtor of its debt service obliga-tions, albeit on a non-judicial, non-contractual basis.Specifically, they may believe that, given the presum-ably adverse financial circumstances of the debtor, itmakes sense to provide the debtor with some breathingspace in its efforts to resolve its financial problems andto work out a consensual restructuring solution with itscreditors.

Other creditors, however, may choose not to observea standstill imposed or declared by the debtor. Instead,these creditors may seek to enforce their legal rights andremedies. They may go into court in the relevant juris-dictions in an effort to recover on their defaulted loans. Inaddition, they may initiate insolvency proceedings that seekeither the involuntary reorganization or liquidation of thedebtor. Or, if they are secured creditors, they may seek toforeclose on their collateral.

Yet, to the extent that creditors choose to pursue anyof these legal remedies in the local emerging market juris-diction, they may find that, depending on the particularjurisdiction, they have significant difficulties in achievingsuccessful outcomes because of impediments that may arisefrom local law or the local judicial systems. In certain juris-dictions, the creditors may believe that the local laws havea pro-debtor bias or are applied in a way that favors thedebtor.5 In some jurisdictions, the creditors also may havequestions about whether the local courts operate fairly andindependently.

By contrast, in project finance restructurings, stand-stills are generally not such ad hoc arrangements. In someproject finance restructurings, the project may seek toenter into formal, contractual standstills with its variouscounterparties in order to permit the restructuring pro-cess to proceed in a relatively orderly fashion. As a gen-eral matter, given the interrelated nature of the project’scontractual arrangements, a project undergoing a restruc-turing may desire to reduce the uncertainty that wouldresult from having assorted parties attempting to exercisetheir legal rights and remedies for breach of existing con-

tractual obligations if, at the same time, other project par-ties are attempting to work out a long-term restructur-ing solution. Of course, the process of entering into formalstandstill arrangements cannot necessarily be accomplishedovernight. Rather, it can be a time-consuming processgiven the need for the project to negotiate satisfactoryterms for such standstills with the relevant project coun-terparties and the time involved in obtaining the neces-sary creditor consents for the proposed standstillarrangements.

After an extended period of time,the parties may realize that

further confrontation will notnecessarily yield the benefits

that either side is seeking.

Furthermore, it should be noted that the parties mayturn to standstill arrangements only after more con-frontation-oriented alternatives have been pursued andperhaps only later abandoned. For example, the projectand the state-owned offtaker may have been embroiled ina major dispute resulting from the offtaker’s repudiation ofthe existing power purchase agreement, which then mayspill over into acrimonious litigation and arbitration indifferent forums both within and outside the host coun-try.6 The parties even may have fought a bitter war ofwords in the international and local press.

In such circumstances, the government parties maywell have a certain “home court” advantage vis-à-vis theproject in how the dispute is portrayed in the local press.This will be particularly true if the government partiesand other domestic players attempt to taint the projectwith allegations of corruption, whether fair or unfair,since such allegations may feed into possible nationalistsentiment against foreign-owned projects in general. How-ever, in certain cases and perhaps only after an extendedperiod of time, the parties may realize that further con-frontation will not necessarily yield the benefits that eitherside is seeking.

As part of the overall standstill arrangements, theproject may enter into a formal standstill with the gov-ernment-owned offtaker with respect to obligations underthe power purchase agreement while a new long-termtariff is negotiated. The parties may agree to forbear on




exercising any legal remedies that are available to them(e.g., the project may agree for the pendency of the stand-still period not to pursue its legal remedies for the offtaker’sfailure to satisfy its payment obligations under the PPA).In addition, the parties also may establish an interim tar-iff that would replace the tariff existing under the origi-nal power purchase agreement.

Moreover, the project may seek to enter into a for-mal standstill with its creditors pending the project’s over-all restructuring and in particular the eventual restructuringof the project’s outstanding indebtedness. The creditorsmight be asked to waive existing defaults under the financ-ing documents. Even if the project cannot service prin-cipal on its loans during the restructuring process, thecreditors nevertheless may insist on being kept currenton interest during this period, and that may therefore bea critical element of any standstill arrangement betweenthe project and its creditors. Furthermore, to the extentthat a project’s supply arrangements are being restruc-tured, the project may enter into standstills with such sup-pliers that, for example, establish new, temporary pricingterms for such supplies.

Central Focus of Restructuring Exercise in Practice

In corporate debt restructurings, the central focus isgenerally on a financial restructuring of the company’s out-standing indebtedness. The parties may consider a myriadof different ways to achieve a successful restructuring.Among other things, they may consider “capitalizing” a cer-tain portion of the outstanding debt for an equity stake inthe company, i.e., what is commonly referred to as a debt-for-equity swap. They also may consider changing theterms of the outstanding debt, such as building in graceperiods for principal repayment, stretching out maturities,changing interest rates, and so forth. In addition, they mayconsider debt buybacks and so-called “Dutch auctions”whereby the debtor seeks to retire some of its outstandingdebt at substantial discounts, if possible. Or they may con-sider selling off certain “non-core” assets of the debtor,with the proceeds of such sales then used, for example, topay down outstanding principal.7

Whatever techniques are used, the focus in manycorporate restructurings may be largely on the financialaspects of the debtor’s operations. In some situations, thisfocus on a financial restructuring of the debtor may notnecessarily provide an adequate basis for a long-term solu-tion to the debtor’s problems. Rather, for the restructur-

ing to be successful over the long term, it may be neces-sary, for example, to re-direct the debtor’s business strat-egy or to make certain corporate governance reformswith respect to the debtor’s management. The AsianDevelopment Bank commented on this general issue ina 2001 report based on a survey of recent restructuringpractices in a number of the major Asian jurisdictions.The report stated: “…very little attention is paid toaddressing important and fundamental issues that wouldnormally arise in a genuine restructuring—such as over-all corporate structure, organizational structure, manage-ment, business evaluation, non-core asset shedding, andso forth.”8

In a project finance restructuring, the central focusin the first instance may be on restructuring certain keyfinancial arrangements. The project may be forced torenegotiate the PPA and particularly the level of the revisedlong-term tariff that the offtaker will pay to the project.As a consequence of any renegotiation of the tariff, theproject then may be forced to restructure its outstandingdebt with its creditors.

Nonetheless, unlike a number of corporate restruc-turings in the emerging markets, a project finance restruc-turing does not necessarily begin and end simply with afinancial restructuring. Instead, a project finance restruc-turing also may involve an operational and/or contractualrestructuring. With respect to the renegotiation of thePPA itself, the government-owned offtaker may seek torevisit key contractual terms, such as risk allocation regard-ing force majeure and foreign exchange; such proposedchanges will be resisted by the project. In addition, otherelements of the project arrangements, such as the fuelsupply chain, may require rationalization.

The process of rationalizing a fuel supply chain is notnecessarily limited to strictly financial issues of what thecost of the fuel should be. Among other issues, the proj-ect may have to address the issue of whether each of thelinks in the fuel supply chain (shipping, storage, etc.) isnecessary or whether, for example, there is too muchredundancy in how the fuel supply chain is structured.In turn, this may force re-examination of issues such assecurity of supply. The project also may have to considerwhether its contracts for fuel should be on more of a long-term or short-term basis and whether it should rely upona few principal suppliers or whether it should have a morediversified set of suppliers. These questions also may impli-cate the broader issues of security and reliability of fuelsupply for the project.




SIMILARITIES BETWEEN CORPORATE ANDPROJECT FINANCE RESTRUCTURINGS IN THE EMERGING MARKETS

Key Role of Strategy in Managing the Restructuring Process

In both corporate and project finance restructuringsin the emerging markets, the parties need to adopt a well-developed strategy if they plan on achieving a restructur-ing solution in a reasonable time frame. In corporate debtrestructurings, the key strategic issue for the creditors ishow to move the restructuring process forward in a timelymanner despite some of the inherent advantages and pos-sible leverage of the local debtor. Specifically, the creditorsmay be faced with the significant “home court” advan-tages of the debtor that arise from the local insolvency sys-tem, the local legal framework, and the local judicial systemgenerally, and even the possible influence and prominenceof the controlling shareholder in the host country.

The presence of timetables helpsdetermine whether the debtor is

demonstrating a sincerewillingness to move the

restructuring process forward and ultimately reach closure on arestructuring plan or whether thedebtor is simply dragging its feet.

None of these advantages are easy for the creditors,particularly foreign creditors, to overcome. Nonetheless, thecreditors can adopt certain strategies to attempt to maketimely progress in the restructuring process.9 By way ofillustration, as one possible strategy, the creditors may pro-pose certain timetables for accomplishing key milestonesin the restructuring process, such as how long it shouldtake to negotiate and sign a detailed term sheet outliningthe basics of a restructuring deal. Although the mere exis-tence of timetables will by no means necessarily ensurethat the debtor adheres to such timetables, at least the pres-ence of timetables may permit the creditors to make a bet-ter determination of whether or not the debtor isnegotiating in good faith. The presence of timetables also

may help determine whether the debtor is demonstratinga sincere willingness to move the restructuring process for-ward and ultimately reach closure on a restructuring planor whether the debtor is simply dragging its feet.

In project finance restructurings, given their inher-ent complexity and the multiple project parties involved,the parties may well need a strategy for keeping the pro-cess focused and on track. As a threshold matter, the proj-ect parties have to decide how to sequence the restructuringprocess. This involves determining the relationship betweenthe different elements of the overall restructuring. Specif-ically, the overall restructuring exercise may consist of var-ious components such as the tariff restructuring betweenthe project and the offtaker, the debt restructuring betweenthe project and its creditors, and any contractual restruc-turing of project arrangements between the project andthe affected project counterparties.

As an example of the issue of how to sequence therestructuring process, the project has to decide whether itmakes sense to effectively postpone the debt restructuringexercise with its creditors until the contours of the tariffrestructuring are more definitively established or whetherinstead it makes sense to move forward on parallel trackswith both restructuring processes. For its part, the projectmay not want to engage its creditors in a debt restructur-ing negotiation until it knows what the new long-termtariff will be.

The project also may be concerned about the prospectof simultaneously entering into what may be difficult andprotracted negotiations with the government parties, on theone hand, and possibly equally difficult discussions withthe project’s creditors, on the other hand. The project maynot wish to be distracted from what it may view as its toppriority, namely reaching a new long-term deal with thegovernment-owned offtaker. Yet the project may be veryinterested in knowing what its debt service requirementswill be going forward so that it will know what latitude ithas in negotiating a revised tariff with the offtaker.

For their part, the creditors may not be content tosimply sit on the sidelines, particularly for an extendedperiod of time, while the project works out a tariff restruc-turing with the offtaker. The creditors may be concernedthat whatever the new tariff level is, it may necessarilyimply certain consequences for how the debt has to berestructured, and the creditors may very well want toavoid being presented with what they might view as a faitaccompli. For instance, the creditors will not want to acceptdebt write-offs or “haircuts” simply because the projecthas agreed upon too low a tariff with the offtaker, nor




will the creditors want to “back-load” their maturitiessimply because the project has agreed upon a “back-loaded” tariff schedule with the offtaker.

As a practical matter, the project and its creditorsmay decide that the project can go forward with its tar-iff restructuring with the offtaker without at the sametime engaging in formal debt restructuring negotiationswith its creditors so long as certain conditions are met.In particular, the creditors may insist on being kept abreaston a fairly regular basis on the status of these negotiationsand any relevant developments. Moreover, the creditorsmay seek to have input on and be consulted on funda-mental economic decisions that arise in the negotiations.Nonetheless, whether the debt restructuring awaits theoutcome of the tariff renegotiation (including whetherthere is an ongoing process of consultation with the cred-itors on such negotiations) or whether the debt restruc-turing instead proceeds in parallel is likely to be decidedby the relevant parties on a case-by-case basis dependingon the particular facts and circumstances of a givenrestructuring.

In addition to the issue of how to sequence the indi-vidual components of the overall restructuring process,another major strategic issue in a project finance restruc-turing concerns how to keep the negotiations movingforward when the underlying economic circumstancesmay perhaps counsel delay for one of the parties to therestructuring negotiations. For example, in the tariffrestructuring discussions between the project and the off-taker, the underlying supply and demand trends for elec-tricity may make the offtaker reluctant to enter into anew, revised long-term PPA with a term of 30 years ormore. In the short run, the demand for the output of theIPPs may be depressed as a result of economic recessionor worse, and/or the offtaker’s ability to fully utilize theoutput of IPPs may be impaired in those cases where thetransmission infrastructure is not fully built out.

In such a situation, the offtaker may be concernedabout entering into a new long-term tariff arrangementwhen, at the present time, it may not need the full outputof the IPP. Yet, if the offtaker were to enter into a newlong-term PPA under such circumstances, assuming thePPA was of the “take or pay” variety, it would have to paythe project a fixed capacity charge as part of its tariff pay-ment whether or not it used the project’s output. The proj-ect, on the other hand, may be seeking the certainty thatwill result from having a new long-term tariff. But it wouldnot want to enter into a new long-term PPA if the restruc-tured tariff were too low from the project’s perspective.

Therefore, the project and the offtaker would haveto determine how to approach the PPA renegotiationprocess in general. They would have to consider ques-tions such as the following: Does it make sense for themto focus their efforts on negotiating a new long-term PPAand new long-term tariff at a time when the offtaker maynot need the full output of the IPP (which may lead theofftaker to push for a low long-term tariff)? Or shouldthey instead develop what is effectively a stopgap approachthat reinstates the PPA on an interim basis until, amongother things, the supply-demand situation stabilizes andthe parties are then ready to enter into a longer-term deal?

Establishing Effective Creditor Coordination

Both corporate and project finance restructuringsrequire effective creditor coordination if the restructur-ing process is to proceed smoothly and if the restructur-ing plan ultimately agreed upon is to achieve acceptanceamong the creditor body at large. In corporate debtrestructurings, the creditors generally attempt to form asteering committee of the major creditors. The steeringcommittee may consist of 10 or fewer creditor institu-tions even though the creditor body at large may consistof a far larger number of creditors.

Essentially, the role of the steering committee is toassume a leadership role in interacting and negotiatingwith the debtor, and this involves attempting to developa consensus among the steering committee members asto fundamental restructuring parameters. Particularly inlarge-scale restructurings, it is simply impractical to haveall of the creditors actively participating in the negotia-tions with the debtor. While a steering committee cer-tainly cannot bind the creditor body at large, itsrecommendations can carry weight with the other cred-itors, especially if the steering committee consists of insti-tutions that are well respected as well as institutions thathave the largest exposures to a particular debtor.

In project finance restructurings, creditor coordina-tion tends to be slightly more informal than it is in the steer-ing committee context, but it is not unusual for the leadcreditors to form a working group. In multi-sourced proj-ect financings, this group of principal lenders may consist ofagent banks for syndicated loan facilities, sovereign exportcredit agencies (or at least the export credit agencies withthe largest exposures), bilateral and multilateral insurers, andmultilateral lending agencies, among others. The principallenders’ group may serve as a clearinghouse for informationon the overall status of the restructuring. Where there is a




bank syndicate, agent banks may, in turn, inform other par-ticipating banks on the current state of play.10 This group ofthe project’s principal lenders also may play a critical role indeveloping positions and a consensus on the range of issuesthat the project brings to its lender group for consideration.

Possibility of Seeking Additional Security

In corporate debt restructurings, the creditors mayseek an improvement in their security position. It is notuncommon, for example, for general unsecured creditorsto demand security in the restructured company to theextent that the company has remaining unencumbered assets(i.e., assets that have not been pledged previously to othercreditors). Among other things, the unsecured creditorsmay require that they be given liens on the company’s plantand equipment and any other valuable assets of the com-pany. If the company defaults again, these creditors do notwant to be caught again in the same relatively weak posi-tion as unsecured creditors; rather, in such a default sce-nario, they want to be able to foreclose on whatever securitythat they receive as part of the restructuring deal.

In project finance restructurings, the creditors mayhave far fewer opportunities to seek additional security.In the original financing, these creditors should havereceived a comprehensive security package providing secu-rity interests in, among other things, all of the physicalassets of the project and the project’s interest in the plantsite, the contract rights of the project, the project’s bankaccounts and receivables, the share pledges of the spon-sors, and so forth. However, there still may be a need torevisit the security package.

For instance, this may arise where the host govern-ment has provided “support” documents in connectionwith the project to provide a back-up to the obligationsof a government-owned offtaker; this may have been animportant element in the structuring of the original trans-action if the offtaker is a relatively weak credit itself (a notuncommon situation in the emerging markets). In such acase, the creditors may seek to have these support docu-ments reaffirmed or restated. The creditors may be par-ticularly interested in such a reaffirmation or restatementif the original support documents were entered into sev-eral years earlier and/or if there have been major changesin the government of the host country since that time.(Even if the creditors do not seek any changes in the exist-ing package, they will need to check with local counselin the relevant local jurisdictions as to whether any ele-ments of the security package need to re-executed and

re-filed either because of any changes in law in the inter-vening years or because of certain structural features ofthe restructuring proposal itself, such as whether there isany new money going into the deal.)

Desire to Simplify Creditor Approval Process

In both corporate and project finance restructurings,there may be an effort to effectively streamline the processfor gaining approval for the restructuring plan. In debtrestructurings, the debtor and the steering committee mayagree ultimately upon a plan and only then seek to presentit for approval to the broader creditor body. As a generalproposition, once they have agreed upon a restructuringplan, the debtor and the steering committee will not wantthen to re-negotiate the restructuring proposal with the massof creditors that have not been involved in the actual nego-tiations. Some of these creditors at large may, for whateverreason, be reluctant to go along with the proposed restruc-turing plan and may seek to be bought out at a premium,or they may sue or threaten to sue to recover on the fullvalue of their outstanding loan amounts. These parties maypresent the classic “holdout” problem.

The debtor and the principalcreditors may consider the

possibility of turning to the localcourts in the relevant jurisdictions

to seek a “cramdown” of therestructuring plan on the

dissenting creditors.

However, it may be uneconomic for the debtor topay a premium to the holdouts and, in fact, doing so mightupset the whole economic framework of the restructuringplan by increasing the debt service obligations beyond thelevel that has been budgeted. In these circumstances, tothe extent that it is available in the relevant jurisdictions (rec-ognizing that there may be no guarantee that local law pro-vides for such an option in the relevant jurisdictions), thedebtor and the principal creditors may consider the possi-bility of turning to the local courts in the relevant juris-dictions to seek a “cramdown” of the restructuring planon the dissenting creditors.




In project finance restructurings, the project, the proj-ect sponsors, and the project’s principal lenders also areinterested in simplifying the creditor approval process.Accordingly, they generally try to develop a restructuringplan that does not trigger unanimous (or even superma-jority percentage) approval requirements among the proj-ect’s public bondholders, if any.11 The project and thesponsors may be justifiably concerned that, regardless of theparticular merits of any restructuring plan they develop, itwill be difficult, if not impossible, to achieve unanimous oreven supermajority approval among what might be a widelydispersed group of bondholders. Bearing these considera-tions in mind, the project, its sponsors, and its principallenders may attempt to fashion a restructuring plan that,among other things, does not alter any of the economicand other fundamentals of the bondholder package, includ-ing such basic items as changing the repayment profile orany payment terms of the project’s outstanding bonds. (Dur-ing the course of the restructuring itself, the project will wantto keep the bonds current on any interest or principal pay-ments that fall due, thereby not triggering any defaults onthe bonds.) Thus, although a capital markets tranche mayhave provided the project with critical financing, unless itis handled properly as the project and other key parties fash-ion a restructuring plan, the capital markets tranche canseriously complicate the efforts of the key project parties toachieve a successful restructuring.

Role of Recovery Expectations of Key Parties

In both corporate and project finance restructurings,the recovery expectations of key parties can drive how thenegotiation process proceeds. In debt restructurings, thecreditors may have a general sense of what constitutes anacceptable or reasonable recovery given the particular cir-cumstances of the debtor. In some cases, they may be seek-ing a recovery well above 50% (perhaps even above, say,70%-80%), whereas in other cases, they may realize thatunfortunately they have to accept a recovery below 50%.Whether or not the creditors have expectations for a highrecovery rate will depend on many factors, such as whetherthe company has reasonable prospects for a strong cash flowgoing forward, whether the local insolvency law effectivelygives the debtor the upper hand in a restructuring situation,whether existing management (which in certain instancescreditors may believe is responsible for some or even a fairamount of the company’s current travails) will stay or go inthe restructured company, whether the company will havea strong competitive position in the future, and so forth.

These recovery expectations on the part of the cred-itor may affect how the creditors view any restructuringproposals that are put on the table. If the creditors believethat a particular restructuring proposal provides them witha projected recovery rate that is less than they have beenexpecting, they may be very critical of such a plan. This,among other factors, may lead them to reject the plan. Con-versely, if a restructuring proposal appears to ensure the cred-itors of a solid recovery, then they may be more inclined totake such a proposal seriously and may be prepared to go for-ward with negotiations on the basis of such a proposal inthe hope of eventually closing a restructuring on that basis.

Nevertheless, whether the projected recovery ratesfor a given corporate restructuring proposal are robust orweak, the creditors need to remember that projected recov-ery rates are just that—i.e., they are strictly notional amountsthat are based on certain financial and other assumptions.Some of the assumptions underlying the recovery projec-tions may not be borne out in the actual event. Moreover,some of the value that the creditors may be counting on aspart of their recovery, such as what may be the imputedvalue of any equity that they may receive if the restructur-ing involves a debt-for-equity swap, may simply turn outto be overstated or otherwise incorrect. Therefore, credi-tors should treat recovery rate projections with a certainamount of caution. After all, for the creditors, these pro-jections are not “money in the bank.”

In large part, restructuringsinvolve determining how the

sacrifice is to be allocated amongthe different parties, or what is sometimes referred to as

“sharing the pain.”

In project finance restructurings, the recovery expec-tations of the project sponsors may be a critical drivingforce in determining the overall economic parameters ofthe restructuring. (Obviously, as discussed below, the recov-ery expectations of the lenders will also be critical.) Thesponsors will evaluate whether a given restructuring pro-vides them with the rate of return that they are seeking,taking all of the circumstances into account. Of course,project sponsors may be forced to lower their overall rate-of-return expectations in the restructuring context com-




pared to what those expectations were when they firstinvested in the project, particularly if the restructuringinvolves a tariff renegotiation with the prospect of less rev-enue coming into the project than was forecast at the timeof the original project closing. Nonetheless, most restruc-turings, almost by definition, involve some level of sacri-fice on the part of the various parties; in large part,restructurings involve determining how the sacrifice is tobe allocated among the different parties, or what is some-times referred to as “sharing the pain.”

The sponsors’ rate-of-return expectations may affecthow they view tariff discussions with the offtaker as wellas debt restructuring negotiations with the creditors. Thesponsors may evaluate a new long-term tariff based onwhether it provides the project with enough revenue sothat, after covering operating expenses and debt servicepayments and other payments under the project’s waterfall,the sponsors can expect an adequate return and full recov-ery of their equity. The sponsors will not only be assessingthe adequacy of the overall level of the new tariff, but alsosuch other important issues as how the tariff is structuredover time (e.g., “front-loaded,” “backloaded,” or flat), whattype of financial or other consideration the proj-ect willreceive for any outstanding payment arrearages from the off-taker, and whether the term of the offtake agreement will,for example, remain the same or be extended. These issuestaken as whole affect the overall level of returns that thesponsors can take out of the proj-ect and, not unimportantlyfrom the sponsors’ perspective, the timing of such returns.

The sponsors’ rate-of-return expectations also mayhave a critical effect on the progress of the debt restructur-ing negotiations between the project and its sponsors, onthe one hand, and the creditors, on the other hand. Suchexpectations may enter into the sponsor’s negotiations withthe creditors on such issues as how quickly the principal willbe amortized, what the overall contours of the amortizationschedule will look like, and whether any reductions in inter-est rate or reductions to outstanding principal will be nec-essary. Of course, the lenders will likely resist any such changesin interest rate or reductions of principal, and realizing thelikely opposition that they will face, the sponsors may notpush too hard on such points and instead may seek flexibil-ity from the lenders on other items such as, for instance, thefinal maturity of the respective debt tranches. The lendershave their own recovery expectations, and it may well bethat they expect a 100% recovery, which would mean thatthere would be no debt write-offs. Even so, as part of therestructuring, the sponsors may try to convert certain por-tions of the debt from fixed rate to floating rates or vice versa.

Fundamentally, the sponsor rate-of-return expecta-tions may create a possible tension between how quicklythe lenders want to have their loans amortized and howquickly the sponsors want to take returns out of the project. If the lenders have deferred principal payments aspart of standstill arrangements with the project, they may wellseek “catch-up” payments as early as possible in the revisedamortization schedule. The sponsors, on the other hand,may try to take returns out as early as possible with the aim,in part, of recapturing some of the additional equity thatthey may have invested in the project as part of the restruc-turing process. This tension between lenders and sponsorsmay exist notwithstanding the previously established prior-ities of payment in the project’s waterfall, which would rankdebt service payments before distributions to sponsors, andbasic principles of corporate finance, which would rank debtinterests ahead of equity interests in a company’s capital struc-ture. Yet the project sponsors may argue, for example, thatwithout their efforts in negotiating with the offtaker, norestructuring could have been achieved and therefore theirefforts should somehow be recognized or rewarded. Nev-ertheless, the extent to which the lenders will want to rec-ognize any such arguments and allow the sponsors to takeout larger-than-normal or expected distributions early inthe amortization profile of the project’s restructured debtwill most likely be a matter of intense negotiation and debatebetween the sponsors and the lenders.

Importance of Early Intervention

In corporate debt restructurings, creditors may findthat it is far easier at an early stage in the process to haveconsultations with the borrower about developing finan-cial difficulties and how these difficulties can be addressedrather than waiting for a widespread payment default cri-sis to hit. As part of their routine loan administrationactivities, the creditors may monitor the borrower’s finan-cial performance and observe that the borrower is nothitting its financial covenant ratios with a comfortablemargin. Or the borrower may come to the creditors seek-ing waivers of particular financial tests, which in itself maybe an important early warning sign to the creditors.

Both the creditors and borrower generally will havegreater flexibility and time to work out a solution in thiscontext as opposed to what may well become somethingof a crisis atmosphere in a post-default environment. In adefault situation, events can easily spin out of control, par-ticularly if certain creditors choose to accelerate their loansor otherwise exercise creditor remedies such as attempt-




ing to foreclose on security. Moreover, in a default situa-tion, it may be very difficult for the creditors, especiallywhere there is a large creditor body, to act in any type ofcoordinated fashion, which may prevent the parties fromreaching a sensible or reasonable solution. And the com-pany may try to pre-empt its creditors by filing for insol-vency, which as discussed above could potentially be verydisadvantageous to the creditors depending on the par-ticular emerging market jurisdiction that is involved.

It is much easier to deal with anincipient problem than with afull-blown crisis. In a default

situation, events can easily spinout of control, particularly ifcertain creditors choose to

accelerate their loans or otherwiseexercise creditor remedies.

Similarly, in project finance restructurings, it is almostcertainly much easier to deal with an incipient problemthan with a full-blown crisis. By way of illustration, if theproject sees that there is a mounting level of paymentarrearages due from the offtaker, then it may be best forsome combination of the project, the project sponsors,and even key lenders to sit down with the offtaker to workout a plan to pay down the arrearages over a prescribedperiod of time. The existence of such a payment plancould give the project parties a benchmark to see whetherthe offtaker is serious about eliminating this problem orwhether the offtaker is prepared to let the problem fester.If the latter is the case, the offtaker may even be willingto put the overall offtake arrangements in jeopardy, whichcould be a precursor to a possible repudiation or renego-tiation by the offtaker of the offtake contract itself. Obvi-ously, this is a scenario that the project and the projectparties will want to avoid at virtually all costs.

In addition to the build-up of payment arrearages,project parties also may want to be alert to invoicing dis-putes with the offtaker that relate to payment mechanicsunder the offtake agreement, particularly where the disputescenter on the mechanics of foreign exchange conversionfrom the local currency to a hard currency such as the U.S.

dollar. Such disputes may arise from honest differences ofinterpretation of the relevant contractual provisions, whichare almost of necessity highly technical. Under such cir-cumstances, assuming that one of the parties to the dis-pute does not invoke any contractually available formaldispute resolution mechanisms such as arbitration, the par-ties may decide that it makes sense as a first step to discussin detail their differing interpretations of the relevant pro-visions and then possibly seek analysis and even perhapsformal legal opinions from outside counsel.

However, such disputes also possibly could representan opening shot by the offtaker in an attempt to revisitfundamental foreign exchange-related risk allocation issues.The offtaker may have come under serious payment pres-sures if the local currency has been significantly devaluedand thus may use such billing disputes and the interpre-tation of certain contractual provisions as a way to relievesome of these currency and payment-related pressures. Inthose circumstances, the project will want to head off atan early stage what may possibly seem like an arcaneinvoicing dispute before such a dispute mushrooms intosomething that may call into question one of the funda-mental pillars of the entire offtake arrangement, namelythe allocation of foreign exchange risk.

Challenge of Arranging Interim Financing

In corporate debt restructurings in the emergingmarkets, there may be no good way to arrange interimfinancing for the debtor while the debtor is experienc-ing serious financial difficulties (such as debtor-in-pos-session financing in the United States). In many emergingmarket jurisdictions, the local insolvency law may notprovide lenders with a special priority if they provideongoing financing to an insolvent debtor, and in out-of-court restructurings there may be a reluctance amonglenders to provide such funding absent special arrange-ments among the debtor’s major creditors which maybe difficult to arrange.12 As a result, the debtor mayengage in different types of uneconomic financing behav-ior while it sorts through its financial difficulties.

For example, the debtor may seek cash advancesfrom some of its principal customers, but these advancesmay carry an interest rate that is far above market inter-est rates. Similarly, the debtor also may be strapped forcash for operating purposes, and it therefore may resortto heavily discounting the price at which it sells its prod-ucts. But by selling its products at prices well below mar-ket prices (i.e., “fire-sale prices”) in an effort to generate




quickly available revenues for its operations, the debtormay be hurting its reputation in the marketplace andmay otherwise be acting in a manner that could be incon-sistent with its long-term business interests. (It should benoted that in certain cases the very suspension of debtservice payments by the debtor pursuant to a debt stand-still or debt service moratorium could provide the debtorwith a sufficient cash cushion to cover operating costs.)

In project finance restructurings, it is virtually impos-sible to attract “new money” to the project. Only existingsources of finance are likely to put more money into theproject.13 The need and uses for the additional finance maydepend on whether the project is in the construction or theoperations phase. The sponsors in particular may be calledupon to infuse additional equity into the project or askedto agree to broaden the uses to which previously commit-ted contingent equity may be applied. In the operatingphase, such additional equity may used to cover, amongother purposes, the project’s operating expenses as well asto keep the lenders current, at a minimum, on their inter-est payments. The sponsors may try to keep the projectlenders committed to working out a consensual restructur-ing, and they therefore may have to provide this additionalequity to help achieve that objective. Otherwise, the lendersmay consider their alternatives, such as accelerating theirloans, realizing on their security, or even putting the proj-ect into bankruptcy (which even the lenders may shy awayfrom in many emerging market jurisdictions, given thenature of the local insolvency systems).

Given the dearth of possible financing sources whena project encounters financial difficulties as well as someof the well-publicized financial difficulties of certain proj-ect developers over the past year, project lenders shouldcarefully analyze and understand the sponsors’ credit-worthiness and their long-term commitment to the proj-ect. Fundamentally, the lenders need to consider thefollowing question: Will the sponsors walk away from theproject and their investment when the project encoun-ters financial difficulties or will they be willing to putadditional equity into the project to keep the project afloatand also be willing to invest the time and energy of staffand senior executives to accomplish a successful restruc-turing with the project parties? The lenders also may con-sider whether they believe the sponsors will remaincommitted to a troubled project to preserve their repu-tation in the marketplace as developers that will not aban-don their troubled projects.

The project’s existing lenders also may be asked to putadditional money into a troubled project. This situation

could arise if a default occurs in the construction phasebefore the project’s construction is yet complete. Althoughif there is a default during the construction period the lendersmay, depending on the specific provisions of the applicableloan documents, have the right, for example, to stop dis-bursing funds to the project, they may choose not to exer-cise such a right. Under certain circumstances, the project’slenders may believe they have a better chance of recover-ing on their loans if they disburse additional funds into theproject, enabling it to complete construction and begin gen-erating revenues, rather than abandoning the project priorto project completion. The lenders will have to weigh thepros and cons of each course of action and consider, amongothers issues, whether, with the passage of the necessarytime, there is the realistic prospect of a reasonable and sat-isfactory project restructuring.

ENDNOTES

1See, e.g., see George K. Miller, Chris Lin, and Alex L.Wang, “Project Documentation: Debt Finance,” 1999, p. 1 (avail-able at www.stblaw.com/FSL5CS/articles/articles428.asp). Theauthors define project finance as follows: “Project (or non- orlimited-recourse finance) refers to a type of debt financing (ineither the private or the capital markets) that does not rely forrepayment on the general corporate credit of an operating com-pany with a financial history, but instead on dedicated, sometimescontract-based revenues from a single asset or a defined group ofassets held by a special purpose entity.” See also InternationalFinance Corporation, Project Finance in Developing Countries (1999),p. 5 (comparing project finance and corporate lending).

2For an overview of intercreditor issues in project financetransactions, see, e.g., Peter F. Fitzgerald, “Intercreditor IssuesArising on Financings Involving Multilateral Agencies and ExportCredit Agencies,” reprinted in Project Financing 2001: BuildingInfrastructure in Developing Markets (Co-Chairs, Peter F. Fitzger-ald and Barry N. Machlin), Practicing Law Institute (2001) [here-inafter Project Financing 2001], pp. 225-231; and Frederick E.Jenney, “Introduction to Intercreditor Issues in Project Financ-ing,” reprinted in Project Financing 2001, pp.195-202.

3World Bank, Effective Insolvency Systems: Principles andGuidelines, Consultation Draft, October 2000, p. 13. Note thatthe final recommendations of this World Bank task force oncore insolvency principles were set forth in the World Bankreport cited in note 12 below.

4For a discussion of “asset management companies” aswell as other issues related to so-called “systemic insolvency”situations, see, e.g., John R. Knight, “Systemic Insolvency: ALawyer’s Perspective,” pp. 11-12, paper presented at Organi-zation for Economic Cooperation and Development (OECD)conference on “Insolvency Systems in Asia: An Efficiency Per-




spective,” held in Sydney, Australia, in November 1999 (avail-able on the website for the World Bank Global Insolvency LawDatabase at www.worldbank.org/legal/gild).

5For a study on the relationship between local insolvencylaws and creditor recovery rates, see, e.g., Fitch, “MexicanBankruptcy and Recovery Rate Study,” December 6, 2001.

6For a discussion of arbitration in international projectfinancings and in particular some of the obstacles faced by off-shore parties, see, e.g., Mark Kantor, “The Limits of Arbitration,”The Journal of Structured and Project Finance, Fall 2002, pp. 42-51.

7For a discussion of the role that institutional bodies can playin addressing issues such as these, see, e.g., Richard A. Gitlin andBrian N. Watkins, “Institutional Alternatives to Insolvency forDeveloping Countries,” September 1999, paper presented toWashington, D.C. Symposium on Insolvency Alternatives (avail-able at www.worldbank. org/legal/gild).

8Asian Development Bank, Guide to Restructuring in Asia2001, 2001, p. 14.

9For further discussion of strategic considerations inrestructurings, see author, “Restructuring: A How-To Guide,”The International Economy, November/December 2001, pp. 46-50; and author, “How to Tackle Debt Restructuring in Emerg-ing Markets,” International Financial Law Review, December2002, pp. 41-45.

10For a discussion of commercial bank involvement inproject finance transactions, see J. Paul Forrester, “Role ofCommercial Banks in Project Finance,” The Financier, May1995 (available at www.projfinlaw.com/news/roleofcbpf.asp).

11For a discussion of bondholder dynamics in projectfinance restructurings, see, e.g., Richard Cooper and GesineAlbrecht, “How to Approach the Restructuring of ProblemProject Financings with Multi-Sourced Lending Arrangements,”Project Finance International, May 19, 1999, pp 55-56.

12See, e.g., World Bank, Principles and Guidelines for Effec-tive Insolvency and Creditor Rights Systems, April 2001, p. 55.(“This often results in an agreement among major creditorsthat emergency funding by one or more will rank for repay-ment in advance of their other entitlements in the event of aformal insolvency administration of the debtor.”)

13For an analysis of how lenders and sponsors from theirdifferent vantage points may view the need to provide addi-tional financing and support to a troubled project, see GeorgeK. Miller, Chris Lin, and Alex L. Wang, “Project Documen-tation: Debt Finance,” 1999, pp. 47-53 (available at www.stblaw.com/FSL5CS/articles/articles428.asp).

To order reprints of this article, please contact Ajani Malik at [email protected] or 212-224-3205.




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