A functioning secondary debt market is an important element of the European restructuring landscape, giving sellers an option to get out of challenging capital and resource-sapping situations. Buyers of second debt are often able to buy in at a level which gives them the flexibility to sustain an impairment of the principal amount due and/or provide fresh liquidity into a distressed situation. For debtors, the introduction of a new lender can often be a fresh start in a situation which might have turned into a challenging dynamic with their former lender.

A fundamental component of the market’s operation is the basic ability of a seller to transfer loans to an eligible buyer. In the recent case of Grant & Others v WDW 3 Investments Limited and Arazim (Gibraltar) Limited, the High Court of England and Wales considered the meaning of the term “financial institution” in the context of a secondary market debt trade. The Court interpreted the term broadly, finding that a non-trading special purpose vehicle with minimal capitalization was a “financial institution” for the purposes of a transfer restriction in the underlying loan document.