DTEK Exchange Offer and Scheme of Arrangement: facilitating high-yield debt restructurings

In the recent financial restructuring of DTEK’s high yield bonds, via a parallel-track exchange offer, consent solicitation and a scheme of arrangement, the English High Court accepted jurisdiction to sanction a scheme of arrangement, on the basis of a change in the governing law of the indenture relating to a series of high yield bonds from New York law to English law.

The decision is a further example of the English court’s readiness to facilitate financial restructurings, where appropriate, irrespective of the debtor’s place of incorporation.

Significantly, this transaction:

  • confirms that a change of a debt’s governing law to English law is sufficient –on its own –to create jurisdiction for scheme purposes; and 
  • emphasises the importance in complex liability management exercises of structuring bondholders’ incentives appropriately to minimise possible holdouts and maximize the likelihood of a successful restructuring; but 
  • is unlikely to affect the practice adopted to-date in high yield restructurings of having to shift a foreign issuer’s "centre of main interests" to the UK where recognition under US Chapter 15 is important.

Linklaters advised Deutsche Bank, as dealer manager, on the exchange offer run contemporaneously with the successful scheme of arrangement.

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