But who should take that loss is often a difficult and nerve-jangling process. Brinkmanship is the usual tactic with hard deadlines often the only way to draw situations to a close. Clever application of legal strategies usually helps also.
All of these factors are at play in the upcoming restructuring of Wind Hellas. The big Greek mobile operator has 3.2 billion euros of debt but is running out of cash to pay its interest bills.
Of the company’s lenders, those at the bottom of the pile — the subordinated bondholders, owed 1.17 billion euros — are under most pressure.
Wind Hellas said on Wednesday that it would not pay an interest payment to these junior lenders as it finalises talks with new investors. With just 26 million euros of liquidity and a 67 million euro interest payment required in the next month someone and something had to give.
The decision not to pay interest to subordinated bondholders indicates where the most pressure is being applied.
The junior lenders are vulnerable because if the company does not pay its interest bills a forced sale becomes more likely, and such a sale would be unlikely to raise enough cash to pay back the subordinated bondholders in full.
A sale price of less than 1.8 billion euros — the value of the senior debt — could see lower-ranked lenders left with nothing.
Wind Hellas’s parent recently shifted its address from Luxembourg to a London office in a move that puts junior lenders at even greater risk. The recent IMO Car Wash court case showed the English courts are willing to strip junior lenders of their debts if company values drop.
Subordinated lenders have responded to the pressure by suggesting they could inject additional capital into the company, thus protecting their position. The company’s ultimate owner, Weather Investments, may also feel obliged to add in further capital.
Whoever acts, doing nothing is not an option. Restructuring offers are due by Oct. 22 and a deal must be concluded by Nov. 15 when an interest payment is due.