Successful workouts: Five critical ways a trustee can partner with investors
Due to current economic challenges, we expect increased distress and defaults in the municipal and corporate debt markets, in the United States and globally. Bondholders and their attorneys will need to work very closely with their corporate trustee as they pursue strategies for recovery amid debt-market turmoil and uncertainty.
Your corporate trustee will not simply be a gatekeeper, but a committed, contributing partner on the deal team. Below, we highlight five critical ways a trustee can contribute to the success of a workout.
Trustees for defaulted bonds must consider themselves an integral part of a debt workout. A trustee must understand its fundamental purpose is to help bondholders maximize their recovery as quickly and efficiently as possible.
Here’s what a distressed debt partnership looks like, starting even before appointment and throughout the restructuring process:
- Pre-appointment diligence: A nimble and thoughtful corporate trustee promptly reviews governing documents, analyzes prior actions, responds quickly to bondholders’ requests and assesses the merits of existing or anticipated litigation. A prospective successor trustee should swiftly and efficiently implement its “know your customer” approval process and obtain necessary internal approvals for appointment.
- Execution of appointment: A flexible and proactive corporate trustee works with the incumbent trustee and the governing documents to facilitate a transfer of the trusteeship. No two indentures are alike, and each instrument of succession must be custom fit to the deal. Prospective successor trustees should be fully eligible to serve in all needed capacities.
- Resources and infrastructure: A strong, experienced corporate trustee has the staff and expertise to enforce remedies and implement legal and administrative strategies in a commercially reasonable manner. The trust officer should be familiar with defaults and remedies and have the authority to negotiate and accept reasonable directions of the bondholders.
- Communication and engagement: A responsive corporate trustee appreciates the highly professional and fast-paced environment in which it acts and communicates effectively with bondholders, borrowers and their professionals. Trust officers must be available when and where circumstances require them.
- Resolution and recoveries: A savvy corporate trustee provides insight into the complexities of distressed debt workouts and is skilled at navigating governing documents to achieve investor goals and maximizing recoveries.
The trustee can enhance recoveries by thoughtfully and creatively collaborating with borrowers, bondholders and their professionals throughout the restructuring process. With challenges ahead for the economy, find a trustee partner that can help you efficiently navigate your recovery strategies.
UMB is a nationally recognized and ranked provider of bond trustee and agency services to the corporate and municipal marketplaces. UMB can meet the broad needs of bondholders, help navigate trouble spots as they occur, and help protect bondholder value. Our distressed debt team includes relationship managers and workout specialists who handle all aspects of a troubled financing and who recognize the economic implications of the deal. To learn more about our offerings, visit umb.com/corporatetrust.
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Gavin Wilkinson and Tina Vitale