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
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,...