Our Legal Insights Blog

It was a pleasure to speak with Geoff Castle of PenderFund’s lead fixed income portfolio manager on their Profiles in Credit podcast. Our conversation made covenants fun whilst at the same time underscoring their strategic importance to credit investors.

Last week we learned how to analyse the capital structure and credit support in a deal to determine Point A, or day one subordination risk and the collateral package. Today we are diving into the analysis of Point B – how this position could change over time.

We’ve decided to make a series of those lessons available to the market. In the series, we take you step-by-step through covenant analysis across each key area of the covenant package.

Before you embark on any covenant analysis journey for any given deal, you need to know where you’re starting out from before you can analyse where things might be headed.

There are several ways that subordination can be embedded in a capital structure and covenant package, and given how important it is to knowhow much debt can potentially be repaid ahead of you, this blog explains three different types of subordination and how to find them.

Our Leveraged Finance Covenant Training now qualifies as an accredited course for continuing professional development (CPD) following approval by the CPD Certification Service, and not a moment too soon. Two high-profile examples of contractual terms delivering harsh results to lenders in recent weeks demonstrate the importance of keeping current on covenant evolution.

Much ink has been spent, and more will no doubt flow, following the write-down of Credit Suisse’s AT1 notes. The implications of the Swiss regulator’s actions spread far beyond that jurisdiction, or indeed that particular asset class, and lessons are being learned by investors across the leveraged finance ecosystem.

The challenges facing Credit Suisse AT1 bondholders illustrates well why my answer is always the same, regardless of the borrower in question: start by reading the Risk Factors.