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Alternative Market Briefing

Debt of U.S. industrials at an all time high, rising worries for loan defaults spur firms to revisit the typical share security agreements

Friday, July 24, 2009

From Kirsten Bischoff, Opalesque New York:

Often, in loan scenarios, creditors secure the ability to take ownership in a firm's shares as security to hold against the loan. As the loan default rate rises with the global financial crisis, fund managers and other creditors are finding it necessary to make decisions to take ownership of debtor shares by enforcing the equitable security interest that is typically part of the package of documents that firms obtain as collateral for a loan to a company.

Debt of US non-financial companies has almost doubled since 1999 The peak of corporate defaults is still to come. It was recently reported that US industrial companies exceeded 100 percent of their annual income for the first time; and the total debt of U.S. non-financial companies was $7.2 trillion at the end of the first quarter, up from $4.3 trillion in 1999, according to Federal Reserve data...(Source

Share securities typically sit unused, and the creditor simply holds the signed and undated instruments of transfer for secured shares. "Unless financial institutions feel uncomfortable about a borrower, they don't always want to be the shareholder of record," explained Frances Woo, Managing Partner at global offshore law firm Appleby.

In the past, strong financial markets meant that acting upon these debtor shares w......................

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