The first of Icelands nationalised banks to be
restructured has used an innovative depository unit scheme and
tax structuring to meet the demands of its international
Straumur Burdaras, once the countrys biggest
investment bank, has now received court approval for its
2.3 billion composition agreement. And the key to closing
the deal was stapling the reissued debt and equity
Icelands laws were reviewed to prepare for the
reorganisation of its four state-rescued banks, as recognised
in IFLRs restructuring category in its awards earlier
this year. But Straumurs two biggest difficulties - its
predominately international creditor-base and some peculiar tax
consequences - were outside the ambit of those changes.
Part of the challenge is you are dealing with a
situation where the legal infrastructure wasnt designed
for events of this scale, said Richard Brown, a partner
at Hogan Lovells who acted for the bank.
Stapling the securities, however, addressed these two issues
by allowing creditors to trade them internationally as well as
optimizing their tax benefits.
The securities tradability on the Euroclear and
Clearstream clearing systems was a priority. But this was
hamstrung by requirements in Straumurs company
articles about the securities being traded
Stapling them, however, allowed the bank to convert the
securities into depository units, hold those units in a newly
created unit depository based in the Netherlands, which then
issued the units to the composition creditors.
"The depositary unit structure allowed the stapling of the
shares and bonds to be effected, while also giving creditors a
security that was tradable on the clearing systems," said Lee
Squires, an associate at Hogan Lovells in London.
The other benefit of stapling was to overcome shortcomings
with the countrys simplistic tax regime. On their own,
the (non-interest bearing) debt securities may have attracted
an arms length rate of interest for tax purposes.
Stapling the securities ensured the debt would be treated as
equity for tax purposes, and that the more attractive dividend
withholding tax rate will be applied.
But the main concern of international creditors could not be
solved through stapling. Being part of Icelands first
bank restructure after the countrys debt crisis created a
degree of hesitancy.
We had to implement something that internationally
would look familiar, Brown said. The composition
agreement being similar to a scheme of arrangement helped ease
some of these concerns.
Some have hailed Straumurs restructuring as a
blueprint for the three Icelandic banks which remain in
state-hands. But Brown doesnt believe this is the
He pointed out that Straumurs management was retained
and played an integral role in the restructuring, and that its
banking operations were fundamentally different.
The other three are much more complicated in terms of
scale and retail deposits, and will take a long time to
restructure, said Brown. They are very different
Hogan Lovells acted for Straumur Burdaras and Bingham
McCutchen represented the creditors committee.
Europe awards: restructuring