Why InPost's anti-cooperation provision could make the final terms

The anti-coop agreement clause finally made it to European high yield. InPost's new senior secured notes include a provision under which the votes of holders in a cooperation agreement are disregarded, and a cap of 20% on any one holder's vote. So far as I'm aware, that's the first time either has appeared in a European high yield bond. The rest of the document is borrower-friendly on almost every point a lender would normally comment on, and that combination is why the provision could stay in.

The preliminary OM, dated September 23rd, provides in the amendments and waivers section (pp. 301-302) that, when counting whether the requisite holders have consented, acted under the indenture or directed the trustee, notes held by a holder and its affiliates count for no more than 20% of the notes outstanding. Notes above the cap are treated as not outstanding, and the Issuer may in its sole discretion raise the cap for an individual holder.
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More importantly, notes held by a holder that is party to, bound by or acting under a Cooperation Agreement are disregarded unless the Issuer or any Parent Entity agrees otherwise. "Cooperation Agreement" (p. 328) means any cooperation or coordination agreement "or any other similar or equivalent voting agreement, proposal, contract, understanding or arrangement howsoever described or structured" with respect to the debt, securities or equity of the Group - a defined term that would capture a group formed around the term loan. The OM's own risk factor (p. 71) goes even further, noting that the definition "could extend to informal communications, understandings or coordinated strategies among holders".
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Cooperation agreements are among the top tools for lenders. They allow holders to organize against a non-pro-rata LME: a group above the blocking threshold agrees to act together before the company approaches holders individually. Here the group's notes aren't counted, a large holder's notes count for 20% at most, and the Issuer or a parent decides whether either exception applies.
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Let me give you an example to illustrate why you should care: Take a holder with 35% of the notes. Releasing all or substantially all of the collateral needs the consent of 66 2/3%, so that holder can ordinarily block the release alone: even if everyone else consents, that's only 65%. Under the cap, only 20 of its 35 count, and the other 15 are treated as not outstanding. The vote is then out of 85, and the other holders' 65 is 76% of that, enough to pass the release over its objection.

On its own, that would be the first comment on most lenders' lists. In this deal, it's one of many. Guarantors coverage makes structural subordination risk important to guard against. Up to 15% of the notes can be redeemed at 103% each calendar year before the first call date, with carry-forward and carry-back, where 10% is market. The tender drag is 75%, not 90%. Contribution Debt and the Available RP Basket are both 200%. The builder basket has no ratio test, and its only condition, that no payment or insolvency default is continuing, doesn't apply to restricted investments. Floating charge collateral is treated as outside the collateral for the liens covenant, and portability applies below a 4.5:1 senior secured net leverage ratio.

Each is a comment lenders would normally make, spread across the whole document, and lenders won't get every point removed. Many have pushed back on the cooperation agreement provision and want it out, and whether it makes the final terms remains to be seen. If it does, the next European deal has a precedent to point to, and provisions that have so far appeared in loan documents will be in a bond.

The questions for your portfolio:

1. Where you hold a position above a blocking threshold, does your document count all of it, and who can decide that it doesn't?
2. When a document gives you this many comments, which do you drop first?

We'll have our fingers and toes crossed that the provision is removed, as it has been from every loan in Europe that has tried to include it - time will tell, and we'll report back as soon as we know.