The perils of underwriting-lite

Author: | Published: 1 Sep 2009

The turbulent credit conditions of the past few quarters have been accompanied by a sharp rise in liability management transactions as issuers seek to restructure their outstanding debt securities. On first glance, liability management seems to be a mechanical rather than legal exercise. However, while the dealer manager (the bank mandated by an issuer to arrange its transaction) is not directly exposed to underwriting risk itself, the usual contractual protections enjoyed by bond underwriters, including the delivery of conditions precedent such as legal opinions at the requisite times, should not, it is argued here, be relaxed.

The scope of this discussion is limited to fixed income (excluding convertible and exchangeable bonds) and to European rather than US law and practice, and assumes that offers will not be made to persons located or resident in the US.

Legal versus franchise risk The dealer manager's exposure in liability management is invariably characterised as...