Part 2: Seizing Opportunity – The Minority Shareholder in the New Age of Co-ops and LMEs

(Co-authored by Sabrina Fox, Fox Legal Training, and Celine Buttanshaw-Chan, PVTL Point)

Welcome back to Part 2 of our series on the emerging developments in Co-ops and LMEs drawn from the recent Knowledge Series webinar with PVTL Point. Click here to access the replay.

In Part 1, we discussed the evolving landscape of European credit and the transformation of Cooperation Agreements (Co-ops). We covered the initial considerations when a Co-op agreement lands on your desk.  

Now, we shift our focus to how minority shareholders can navigate this new frontier, the debate around "Omni-Blockers," and address some key concerns.

Beyond Defence: Co-ops and LMEs as a "Great Leveller"?

Could this new environment, with its complex LMEs and evolving Co-ops, actually be more advantageous for minority lenders? We certainly think so.

As Celine states, "The world of LMEs… if you are proactive, if you are genuinely reading the documents for yourself… how can there not be opportunity in that?" For every instance a creditor might prime you, there's an opportunity to get a small stake and propose something yourself, or collaborate with other stakeholders.

This isn't just for small funds; larger funds are also adapting their approaches. It’s about collaborative behavior to work with the business for a better outcome, not necessarily ensuring everyone wins equally, but viewing the situation holistically. If you have an opportunistic mindset, why not be the one to rally the troops? "Before you had no voice, and now you have a voice," Celine emphasized during our discussion.

The "Omni-Blocker": Panacea or False Security?

We also touched on the much-discussed "Omni-Blocker" or blanket LME blocker. While the idea of a single clause to prevent all unwanted LMEs sounds appealing, Celine expressed skepticism, a view Sabrina shares.

• ‍Definition Dilemma: What exactly constitutes an LME for the blocker's purpose? If it's undefined, is it wider or narrower? It might just invite litigation. ‍
• False Sense of Security: Relying on an omni-blocker can lead to neglecting a thorough read of the actual document baskets and provisions. The J.Crew IP blocker being inserted into deals where IP is irrelevant is a classic example of not tailoring protections. ‍
• The Real Blocker: Knowledge. Understanding how terms work, being able to make timely investment decisions, and analyzing each primary deal as if the borrower were distressed – that's the true LME blocker. As Celine put it, "If you want to block, you should block by looking at the baskets."

Key Questions from Our Discussion

We also tackled some great audience questions during our live session:

Are Co-ops Anti-Competitive? The lawyerly answer is "seek legal advice," as each agreement needs individual assessment. However, as Celine noted, the argument is often used by those wanting to avoid a Co-op. The introduction of financial incentives for joining might change the calculus here, as fiduciary duties to investors come into play.

Can Minority Lenders Initiate an LME Without a Co-op? Celine's answer was a resounding "yes." A minority lender can file a restructuring plan, force engagement, and gain leverage. Even the public suggestion of a potential LME can impact bond prices, giving a smaller player significant power. Your "voice" is a key asset, and joining a Co-op means spending that bargaining chip.

The Path Forward: Knowledge is Your Ammunition

The overarching message from our conversation was clear: the market isn't going back. The evolution is here to stay. The real strength lies in being well-equipped with knowledge to react quickly and strategically. For covenant nerds, it's an exciting time, as the importance of terms is magnified at every stage, not just in primary issuance.

As Celine aptly noted, when you combine an understanding of the borrower, sponsor, industry, assets, guarantors, and jurisdictions with a deep knowledge of the documents and the transaction lifecycle, that's where the power lies. It’s about moving beyond "amend and pretend" and actively shaping outcomes.

The replay of our lively discussion is available on the Primary Market Education Series course on Fox Legal Training's first-of-its-kind legal education platform. Click here to access it.

If you’d like to equip your team with the skills to navigate these complex situations, Fox Legal Training offers a range of courses on our online platforms, plus lots of free resources. We’re here to help you stay ahead of the curve.

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