The Regulation on the Amendment of the Regulation regarding the Restructuring of Debt Owed to the Financial Sector has entered into force upon its publication in the Official Gazette dated 21 November 2018 and numbered 30602 (the "Amending Regulation") and has introduced certain changes to the Regulation regarding the Restructuring of Debt Owed to the Financial Sector, published in the Official Gazette dated 15 August and numbered 30510 (the "Restructuring Regulation").
Readers may refer to our related article dated 18 September 2018 for a more general discussion of the Restructuring Regulation.
The Amending Regulation clarifies some questions as to the scope of the Restructuring Regulation by introducing a new defined term for eligible "Debtors".
According to the Amending Regulation, the following entities are not eligible to apply for financial restructuring under the Restructuring Regulation:
- entities set out in article 3 of the Banking Law No. 5411 (comprising deposit banks, participation banks as well as development and investment banks as defined in such Banking Law);
- capital market institutions described in article 35 of the Capital Markets Law No. 6362;
- entities subject to the Insurance Law No. 5684;
- entities subject to Law No. 6361 on Financial Leasing, Factoring and Finance Companies; and
- companies subject to Law No. 6493 on Payment and Security Settlement Systems, Payment Services and Electronic Money Institutions.
Repayment ability tests
The Restructuring Regulation requires creditors to make an assessment of the repayment ability of their debtors. According to the Restructuring Regulation, debtors will only be eligible for restructuring if their financial position will demonstrably improve following any proposed restructuring and enable them to service the restructured debt.
The Amending Regulation requires this improvement in repayment ability to be realisable "within a reasonable period of time", which was not an express requirement in the original Restructuring Regulation.
According to the Amending Regulation, this assessment will be performed by institutions to be determined in accordance with the revised Framework Agreements to be issued. Note that the original Restructuring Regulation required these institutions to also be approved by the Banking Regulation and Supervision Agency.
A guaranteed seat for foreign and international lenders
The Amending Regulation also changes one of the most heavily criticised positions of the original Restructuring Regulation, where foreign and international lenders had to fight for a seat at the table if they wanted to participate in a potential restructuring and seek out majority approval from domestic bank creditors.
The Amending Regulation sets out clearly that foreign and international lenders have ability to participate in restructurings if they choose to do so, without requiring creditor consent. The rules and procedures that will govern their participation will be set out in the revised Framework Agreements to be issued.
Changes to certain restructuring matters
The Amending Regulation has removed paragraphs (2) and (4) of Article 9 of the Regulation which restricted (i) the application of interest rates below market interest rates to debtors belonging to the same risk group (as defined in article 49 of the Banking Law No. 5411); and (ii) the disclosure of confidential information relating to a debtor between themselves or to other third parties.
The Amending Regulation addresses much of the concerns and issues raised with respect to the original Restructuring Regulation following its original enactment. At the top of this list sits the inclusive approach adopted towards foreign and international lenders, which is hoped to facilitate more wholesome and fair restructuring discussions going forward.
The market is now turning eyes towards the Banks Association of Turkey, which is expected to issue revised Framework Agreements after approval from the Banking Regulation and Supervision Agency.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.