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...