Our Legal Insights Blog

In light of the recent news that a well-known telco borrower is using assets transferred to an Unrestricted Subsidiary as leverage for lenders to participate in discounted debt buybacks, we thought it was a good time to highlight potential sources of Unrestricted Subsidiary investments capacity in the average leveraged finance deal.

Last week I had the pleasure of witnessing the progress of one of my students in real time. Having joined the course only a few weeks ago, he sent over a completed covenant capacity grid for my review ahead of a catch-up call. What I saw absolutely thrilled me – the grid was almost flawless, highlighting nearly every significant basket across debt and liens, restricted payments and permitted investments. His work showed the tangible benefits of dedicated study and proved the thesis that underpinned my establishment of FLT.

According to a recent newsletter from the restructuring news outlet PETITION, the amount of distressed paper in the market is down significantly from the start of the year, and according to JPMorgan this is in large part due to the high number of liability management transactions (LMTs).

In the final episode of our series on Debunking Common Covenant Myths, we clarify the wide flexibility that management has to apply asset sale proceeds. Some market participants believe that asset sale proceeds can only be applied to repay debt or reinvest in the business.

The fourth in our series of common covenant myths is that EBITDA add-backs are only found in the definition of “Consolidated EBITDA”, and nowhere else in the offering memorandum or senior facilities agreement.

Another common covenant myth that we hear all the time at FLT is that management must calculate capacity at the time an action is taken, that is, when debt is incurred, or a dividend is declared.

Welcome to day two of our Debunking Common Covenant Myths mini-video series, where we explore adventures in covenant calculations – specifically, we bust the myth that the debt figure used for covenant calculation purposes is the same debt figure that’s presented on the balance sheet.

Welcome to the first in our mini-video series on Debunking Common Covenant Myths! We’re starting with a topic of critical importance to lenders, whether they’re seeking to protect their existing investment or looking to make a lucrative new one – Priming Debt Analysis.