Although Turkey’s Framework Agreement (FA) - an inter-creditor agreement through which debtors and their creditors can negotiate an agreement to restructure debt - lapsed in July 2023 after having been extended for two years in 2021, there is an expectation that a new restructuring law will replace it soon, according to two restructuring advisors and a lawyer.
“I expect a new restructuring framework to be drafted soon, hopefully one that is influenced by the UK’s company voluntary arrangement procedure,” one of the restructuring advisors said.
The current legislative limbo can be used by the Banking Association of Turkey to consult with banks and other stakeholders in order to develop a new law which would provide similar protection to debtors that the FA offered, the second restructuring advisor noted.
This would be especially true for embezzlement charges and the ability of banks to transfer assets below book value to SPVs, but a new law could also find ways to improve the availability of financing under the FA, which had been lacking, that advisor continued.
In lieu of a newly drafted law, one lawyer suggested that the operation of the Framework Agreement should be extended a second time.
"If we consider the recent hawkish stance of the Turkish Central Bank, which affects companies' access to liquidity, and the imminent local elections next year in March, I think there is a certain urgency in terms of offering solutions to companies for addressing inter-creditor discussions smoothly," said the lawyer.
Concordato in focus
Concordato - an in-court procedure whereby debtors can seek protection from creditors if facing temporary financial difficulties - has come under scrutiny from market participants.
Göktekin Enerji AŞ, applied to restructure its debt through concordato two weeks ago, however the second advisor noted that the procedure will likely just be a way to postpone, rather than fix, its debt burden.
“Concordato has a bad reputation. Courts do not have the capacity or efficiency to deal with companies in the same way as creditors and debtors do directly through out-of-court proceedings,” added the first restructuring advisor.
Although the maximum period for which concordato applicants can postpone interest payments is 23 months, the extended timeline does not necessarily mean that companies in financial difficulty are likely to address their outstanding debt successfully during the period, according to the first restructuring advisor.
During the in-court concordato process, applicants will have relinquished their access to credit markets, which is likely to affect their operations, as well as future debt sustainability, given debtors' woes are out in the open.
“The debtor will not be able to access supply finance, and there are next to no means of obtaining debtor-in-possession financing,” said the first advisor, who noted that once the concordato period ends, it is not clear if companies will be in any shape to continue operating.
The lawyer agreed, adding that the commencement of a concordato procedure is usually treated as an event of default, meaning attracting a new lender would be impossible at that stage.
State-owned banks are usually more flexible on pricing than private ones once inter-creditor discussions start, however when it comes to security, state-owned banks are more firm and would usually want an improvement in the size or quality of collateral pledged, according to the lawyer.
"We acted for a company which had four private lenders on its balance sheet," said the lawyer. "The banks had significantly different views on the quality of collateral needed to progress the discussions, as well as some divergence on pricing. This made the company explore whether they would be better off using the concordato [process], due to the onerous terms proposed by the lenders."
The lawyer highlighted one case in which a company missed the July 2023 deadline to use the FA, after initially attempting to discuss its debt bilaterally with certain individual creditors.
"If they would have had access to the Framework, there could have just been one leading bank representing the interests of the group, circumventing the need for individual bilateral discussions," said the lawyer, who noted that bilateral negotiations can be impractical in cases where a large number of lenders are present.
Despite its shortcomings, the first restructuring advisor and the lawyer noted that they expect more debt restructurings to take place through the concordato procedure, for lack of a better way to engage creditors.
"The textile sector is especially fragile right now as electricity prices, which are their largest feed-in cost, are no longer being subsidised. Inflation [has] also increased labour costs and the recession in the EU cut their ability to sell," said a third restructuring advisor.
Göktekin Enerji AŞ did not return a request for comment.
