After storied Austrian motorcycle manufacturer KTM AG presented an insolvency plan to creditors last year, several of them convened a video conference to discuss a counter-proposal. More than 100 parties joined, but none of the usual big corporate lenders were involved. Instead, the group featured a motley crew of backers from tiny German towns, Chinese banks and European pension funds, all with wildly varying knowledge of the case at hand. The call was raucous, according to people briefed on the meeting, but the investor pressure ultimately encouraged the company to improve its terms.
Such scenes are becoming more common in debt restructuring situations in Germany and Austria as businesses falter under the weight of higher energy prices and increasing competition. That’s because many of the region’s medium-sized companies, the so-called Mittelstand, rely on a niche type of debt known as Schuldscheine. While long seen as a safe haven for investors, it comes with one significant quirk – creditors must be in unanimous agreement before any modifications can be made to the debt terms, and there is no central figure to act as a voice for all lenders. Just a few holdouts can thwart a deal, threatening the company with the risk of insolvency.
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