European lawyers have declared pre-insolvency structured debt-for-equity swaps for banks as legally possible, opening up a new way to increase much-needed core Tier 1 capital.
Outlined in the April edition of IFLR, the structure involves a true sale of a refinancing lines repayment obligation from a local holding bank to a special purpose vehicle (SPV) followed by the SPVs merger with a Luxembourg or Netherlands-based SPV, and then the merger of the foreign SPV with the local financial institution.
The process eventually provides risk weighted asset relief to the local financial institution, and increases its core capital.
According to Boris Chonkov, in-house lawyer at Hypo Alpe-Aldria-Bank in Vienna, who invented the structure, lawyers in Italy, Germany, England, Sweden, Austria, Luxembourg, the Netherlands, Croatia and Slovenia have checked the structure and declared it to be legally feasible. He is yet to check with Spain, Portugal and Greece,...