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This is really a breathtaking legal situation. Bankruptcy law typically trumps virtually all other laws, with not much to guide the court's discretion. Intern
by w10-1 3y ago
This is really a breathtaking legal situation.
Bankruptcy law typically trumps virtually all other laws, with not much to guide the court's discretion.
International bankruptcies are even weirder. In this case, US bankruptcy law has the power to intervene in ongoing bankruptcy proceedings in Hong Kong, Cayman's, etc.
Bankruptcy law protects debt-holders and the company, but not other stakeholders. As far as I know under US law the court has no basis to change anything for reasons of economic policy or impact. If the Hong Kong court pushes mainland Chinese interests, it's unclear to me how the other courts would respond.
Further, the due diligence required to qualify debts and debt-holders could uncover some unsettling relationships. I can imagine China viewing US bankruptcy discovery as an fishing expedition for intelligence.
Huge amounts, even larger consequences, and super-power competition would make this difficult even if the law were programmatic, but here so much depends on the court's discretion, and the court itself is the finder of fact. ("So much depends/on the red wheel barrow"?)
In the US we're lucky that these proceedings are mostly in the open and on the record (albeit sometimes only to record the results of debt-holder negotiations).
- throwaway2037 3y agoThis is really a breathtaking legal situation. Yeah, not really. They issued USD debt and chose NYC as the legal jurisdiction to make their bond more attractive to overseas buyers. There are probably a myriad of overseas entities involved. It is very unlikely this will spread back to Mainland China. Bankruptcy law typically trumps virtually all other laws, with not much to guide the court's discretion. No, sovereignty does. We learned that during the CoCo bond 100% write-down during the Credit Suisse forced merger with UBS.
- HWR_14 3y agoWhat CoCo bond write down? Or do you mean those special bonds bank issues that go to zero before any other assets during a run?
- throwaway2037 3y agoThanks for asking. Yes, exactly right. To be clear, I needed to Google the exact meaning of CoCo bonds. It would better to say AT1 bonds. Google defines AT1/CoCo bonds as: AT1 bonds are contingent convertable (CoCo) bonds that are designed to functon as both debt and equity. More: https://www.investopedia.com/terms/c/contingentconvertible.asp https://www.investopedia.com/terms/c/contingentconvertible.a... BTW -- The writedown is incomplete. There are numerous court battles in numerous jurisdictions that may take 5-10 years to wind down. And, no, I don't think the Swiss Gov't will lose any of them. In the end, UBS will probably throw some pennies at these poor fools.
- HWR_14 3y agoThose poor fools got a premium rate for this to happen. Like, the entire point of AT1 bonds is this can happen. Other banks have AT1 bonds, and I think they have also been written down. Far from the Swiss government pulling a bait and switch, the point of AT1 bond is to have privatized safety net like how it is being used.
- urthor 3y agoExcellent point about sovereignty and the absurd Credit Suisse merger.