The Financial Restructuring Framework Agreement ("Previous FA") drafted by the Banks Association of Turkey was revised to be divided into two separate framework agreements for large scale (the "Large Scale FA") and small-scale (the "Small Scale FA") debtors.
- While the Large Scale FA will be applicable to the financial restructuring of debtors with an aggregate principal financial debt equal to or more than TRY 25 million, the Small Scale FA will be applicable to the financial restructuring of debtors whose aggregate principal debt is under TRY 25 million. Accordingly, different from the Previous FA, all debtors will be able to benefit from a financial restructuring framework regardless of the amount of their financial debts.
Large Scale FA
- The Large Scale FA will only apply to the financial restructuring of debtors whose aggregate principal financial debt (cash + non-cash) is equal to or more than TRY 25 million (this was previously TRY 100 million) (the "Large Scale Debtors").
- Debtors whose financial debt is less than TRY 25 million can benefit from the Large Scale FA upon the approval of at least two creditor institutions and the majority of creditor institutions representing two-thirds of receivables.
- All the Large Scale Debtors, except those declared bankrupt, will be able to benefit from the financial restructuring framework. Debtors are able to benefit from the framework even if there are legal proceedings initiated against them. That said, if the debtor's bankruptcy is declared during the financial restructuring process, the debtor would be considered to have defaulted.
- Under the Large Scale FA, the financial restructuring negotiations must be completed within 90 days; however, the negotiations can be extended for an additional 90 days upon the approval of at least two creditor institutions and the majority of creditor institutions representing two-thirds of receivables.
- In line with the Previous FA, at least two creditor institutions and the majority of creditor institutions representing two-thirds of receivables are able to terminate the financial restructuring process if, during the negotiations of the financial restructuring agreement, the creditor institutions representing one-fourth of receivables that are not parties to the framework agreement initiate legal proceedings against a debtor and those proceedings are not terminated in 30 days.
- If the creditor institution to which the application was submitted has concerns about breach of banking precedents, bad faith or the existence of conditions infeasible to accept, the application could be rejected upon the approval of at least two creditor institutions and the majority of creditor institutions representing two-thirds of receivables.
- The Large Scale FA provides that the financial restructuring process will not affect the following enforcement actions previously taken by any creditor institution:
- a date for a sale is determined;
- a pending case for the annulment of a tender;
- debt has become subject to an executory commitment; and
- a pending case for the annulment of disposal.
In case of these enforcement action, at least two creditor institutions that own at least two-thirds of the claims will resolve as to whether the financial restructuring process will continue.
- Creditor institutions must keep all information concerning each other, debtors or third parties gained during the process, strictly confidential.
Small Scale FA
- All the debtors whose aggregate principal financial debt (cash + non-cash) is less than TRY 25 million can apply to financial restructuring. Previously, only the debtors with more TRY 100 million of financial debt were able to make use of the framework agreement.
- All of a borrower's creditors that are parties to the Small Scale FA must agree to the restructuring if at least two creditor institutions that own at least two-thirds of the claims covered under the Small Scale FA sign the restructuring agreement.
- The quorum required for other creditors who have not signed the Small Scale FA to participate in the financial restructuring is the affirmative vote of at least two creditor institutions representing at least two-thirds of the receivables of the creditor institutions consortium.
- As in the Previous FA foreign credit institutions or international organizations could join a financial restructuring on a debtor basis without being subject to the creditor institutions' approval in the Small Scale FA.
- Financial restructuring tools are limited to (i) extending loan maturities; (ii) renewing loans; (iii) writing down the default interest rate partially or entirely; (iv) transferring or assigning the receivables in return for consideration in kind, in cash, purchase price dependent on collectability, sale or removal by other means of those receivables from the debtor's balance sheet partially or completely, in consideration of the value received in kind, whether received from the debtor or third parties; and (v) entering into protocols by acting jointly with other creditor institutions or creditors.
- Creditor institutions executing the Small Scale FA cannot be forced to extend additional loans. They can however choose to extend the loans individually under financial restructuring agreements.
- Following the execution of the financial restructuring agreement, if as a result of legal proceedings that have been or will be initiated by creditors that are not parties to the Small Scale FA, the debtor becomes unable to maintain its operations and such proceedings are not terminated within 30 days, it will constitute an event of default under the financial restructuring agreement.
- The Small Scale FA provides that the same legal proceedings under the Large Scale FA will not be affected by the financial restructuring process. If a debtor becomes incapable of maintaining its operations because of such actions and the relevant creditor institution does not waive them, the financial restructuring process terminates.
- Creditor institutions must protect all information concerning each other, debtors or third parties gained during the application of the Small Scale FA, including the application and negotiations of financial restructuring, as confidential information.
- The maximum term for restructuring must be 60 months. In principle, the entire debt restructured must be paid within the term. However, a maximum 25% of the total debt restructured can be paid after the expiry of the restructuring term.
- Debtors may be given a grace period. Accordingly, this grace period could be a maximum of twelve months without principal or interest payment.
- In principle, instalments should be monthly. However, depending on the sector, longer instalment terms could be negotiated.
- Debtors must ensure that at least 10% of the total principal debt is paid each year following the grace period.
- The interest rate can be fixed or floating. Floating interest rate will be determined based on the TRY Reference Rate (TLREF).
- All debts must be restructured in Turkish lira during FR process.
- No debt to equity swap is available under the Small Scale FA.
- No write down of principal is available under the Small Scale FA.
- If the at least two creditor institutions and the majority of creditor institutions representing two-thirds of receivables agree to deviate from the above points, the relevant financial restructuring process will be subject to the Large Scale FA.
Draft Financial Restructuring Agreement:
- The Small Scale FA also includes a draft financial restructuring agreement ("Draft Agreement") which provides a general framework for each individual restructuring and will be an integral part of the original facility agreements signed by the debtor.
- Execution of the Draft Agreement does not mean that the existing debts are renewed or ceased, that no other obligation exists, or that the creditor institutions waive any collaterals they may have.
- In case of an event of default, only the default interest rate and other default provisions under the relevant facility agreement will apply.
- The Lead Bank may request the debtor to provide additional securities.
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.