SCORING WITH GARI
WFW’s Global Aviation Restructuring Index (GARI) launched on 19 October 2021 and has already attracted praise for its innovation and utility. It was updated on 18 January 2022 to cover the restructuring procedures in four new jurisdictions: Chile, Colombia, Israel and the Philippines.
Having spent several weeks collecting and scoring the data for each of the 56 restructuring procedures spanning 30 jurisdictions around the world, there has been plenty of scope for us to conduct data analysis beyond the headline debtor-friendliness and creditor-friendliness scores.
In this article, we share some of our initial insights.
All method, no madness
Each restructuring procedure covered by GARI is scored based on responses given to 33 questions. For each question, the response given feeds into one or more of the six component scores, namely accessibility, speed and cost, debtor protections, creditor rights, competency and flexibility. GARI’s scoring system is ‘two-dimensional’ and is based on a matrix of the responses to questions marked against six component scores. As an example, the response to question 3.2 on the availability of the restructuring procedure to foreign debtors feeds into the accessibility, competency and flexibility component scores (but not the other three component scores).
The extent to which a response to a question affects each component score relevant to it may be weighted differently. For example, the response given to question 3.2 potentially accounts for about 50% of the total accessibility score, but potentially accounts for only about 8% of the total flexibility score.
When creating the scoring system, care was taken to ensure there was no ‘double-counting’ or compounding of scores where the subject matter of one question substantially overlapped with another (for example, the ‘maximum moratorium period’ in question 6.2 and the ‘alternative A waiting period’ in question 7.2).
The creditor-friendliness score (CFS) is calculated by aggregating the following component scores, each weighted as indicated in parentheses: speed and cost (25%), creditor rights (45%), and competency (30%).
The debtor-friendliness score (DFS) is calculated by aggregating the following component scores, each weighted as indicated in parentheses: accessibility (10%), speed and cost (10%), debtor protections (40%), competency (30%), and flexibility (10%).
Summing up the differences
One fundamental observation about the GARI scoring system and the scores produced is that often a response to a question scoring highly against the ‘debtor protections’ score produces the inverse, a low score, for the ‘creditor rights’ score. Therefore, the creditor friendliness and debtor friendliness scores are, to some extent, ‘zero-sum’ and, consequently, the scores for each are heavily tempered by the balancing effect of the other. Because of this a ‘high’ DFS is between 55 and 65%, and a high CFS between 65 and 75%.
An interesting additional set of scores, which can easily be derived from the CFS and DFS, are a restructuring procedure’s ‘composite score’ (CMP), calculated by adding together with DFS and CFS, and a ‘balancing score’ (BAL), calculated by subtracting the DFS from the CFS, or vice-versa, with ‘zero’ theoretically representing a perfectly balanced procedure as between a debtor and the affected creditors.