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Capital Markets

Germany: Distressed debt will suffer from risk limitation

But lenders will price to encourage trading.

Volker Beissenhirtz, Schultze & Braun

"No-one knows what kind of impact it’s going to have because we have literally nothing with which we can compare it"
Volker Beissenhirtz, Schultze & Braun

Germany’s distressed debt market could be slashed in size by surprise provisions contained in a new bill, published by the country’s ministry of justice on January 23. The Risikobegrenzungsgesetz – risk limitation law – is the first bill to come out of Germany’s heated public debate about the merits of private equity and hedge funds, which has involved these investors being characterized as "locusts". Volker Beissenhirtz, head of the Berlin office of insolvency law specialists Schultze & Braun, says that the bill was originally intended to constrain hedge funds that band together to sway shareholder votes. However, late in the drafting process, extra provisions were inserted that seek to give borrowers more power and protection in the market for non-performing and sub-performing loans, in which foreign funds and banks have been the principal investors. There were an estimated €15 billion in trades in that market last year, he says.

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