Secondary debt market transactions involving distressed companies: legal perspectives


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Restructuring & Insolvency expert
Practice notes

Secondary debt market transactions involving distressed companies: legal perspectives


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Restructuring & Insolvency expert

Practice notes
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Companies which are starting to show signs of distress often see their debt being traded on the Secondary market at prices below par/Face value. The extent to which the debt is discounted to face value reflects the market's view of the likelihood (or not) of the debt being repaid in full.

The original lenders of record (eg banks or lenders which originated the loan) may be keen to sell their debt exposure on in the secondary market to reduce their exposure to a particular debtor or sector.

In complex restructurings, excessive debt trading can make negotiations with key creditors difficult if they are constantly changing creating a ‘revolving door’ scenario.

Key players

Typical secondary debt players include hedge Funds, vulture funds, special situation funds, Private equity (PE) funds and pension funds.

They trade in secured/unsecured debt, bank or bond debt or trade claims. The secondary debt market is largely unregulated, although the Loan Market Association (LMA), Europe's trade association for the syndicated loan markets, has made significant progress in standardising documentation and processes (see Practice

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Jurisdiction(s):
United Kingdom
Key definition:
Secondary market definition
What does Secondary market mean?

The purchase and sale of securities which have previously been issued in the primary market.

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