Loan Group Warns Over Creditors’ Bankruptcy Rights


Published in the CFO Journal - November 2012.

The primary industry group for the corporate loan market warned that any attempt to limit the rights of secured creditors in the event of a bankruptcy could have a broader impact on companies’ access to and cost of capital.

The comments by the Loan Syndications and Trading Association were aimed at the American Bankruptcy Institute, which is currently studying the 1978 bankruptcy code for areas in need of updating. Among those under consideration is the role of secured debt in bankruptcies.

The LSTA’s general counsel, Elliot Ganz, said in a statement announcing the formation of a working group on the ABI’s review that any attempt to limit secured creditors’ rights could limit companies’ access to capital both before and after bankruptcy, because lenders will feel less protected. “Without the protections secured creditors have come to rely on, the supply of credit to growing companies is likely to shrink and the price of whatever credit is available is likely to rise,” he said.

Robert Keach, co-chair of the ABI commission reviewing the Chapter 11 code, said the group has so far only identified the role of secured debt in bankruptcies as an area of study and hasn’t taken any position on the issue.

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