German Federal Court of Justice decision paves the way for bond restructurings under 2009 Bonds Act.

The German Federal Court of Justice (the Court) recently published its first decision on the reformed German Bond Act (Schuldverschreibungsgesetz). Following the Court's decision, a broader range of bonds can now be restructured under the 2009 Bond Act. The decision also allows for bonds issued before August 5, 2009 to opt-in to the Bond Act’s powerful restructuring toolkit. The decision provides important guidance on how bond restructurings can be incentivized to obtain sufficient bondholder approval.

Background -

In 2009, the German legislature reformed the previous 1899 Bond Act, which had limited practical relevance, mainly due to its limited scope of applicability. The 2009 Bond Act provides for several restructuring tools by majority vote (e.g., debt-to-equity swaps and haircuts) and was intended to apply to a broad range of bonds. The Act contains a provision allowing holders of bonds issued before August 5, 2009 to opt-in to the 2009 Bond Act by majority vote and with consent of the issuer in order to benefit from the restructuring toolkit provided by the 2009 Bond Act (Opt-in).