Our Legal Insights Blog

Lenders pushed back on the financing for Lone Star's buyout of ContiTech from Continental, and the October 21st supplement shows a substantial list of changes from the October 15th preliminary offering memorandum. The general debt basket was reduced from the greater of €460 million and 75% of LTM EBITDA to the greater of €250 million and 40%, and J.Crew, Chewy and Serta-style protections were added. It was encouraging to see lenders win these concessions.For each change, the next question is whether it alters what the borrower can do at closing, limits what it can do later, or gives lenders a procedural right. Even with a long list of changes, we must ask: What did lenders actually gain?

At our Covenant Exchange dinner in Amsterdam, the question that kept coming up wasn't about any single provision. It was about who owned the risk. When a term in the documents determines whether you get repaid, is it a legal point or a commercial one? The answer around the table was unanimous – the front office owns the risk. The documents set the yield, and it's the deal team that explains itself if the credit goes wrong.

Two European bonds in the market this month, Intertek and InPost, add back to EBITDA losses from pandemics, natural disasters, acts of God, war, cyber attacks, strikes, supply chain disruption and tariffs. I was asked this week what "act of God" means. The better question is what gets added back.

If your downside case depends on a sponsor choosing not to use a contractual flexibility it has negotiated, that choice deserves careful scrutiny.

Lenders saw success this week as InPost removed the anti-cooperation provision from its proposed bonds, a week after including it in the preliminary offering memorandum, but there’s still plenty of flexibility in the rest of the package.

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.

At our Covenant Exchange dinner in Dublin, I found myself saying something that felt faintly heretical after a decade spent advocating for stronger covenant protections: perhaps telling lenders to push harder in primary is not always the most useful answer.

You hold Senior Secured Notes in a European leveraged buyout. A holding company above the operating group has issued Senior Notes that fall due before yours. Despite being senior in multiple ways, you’re still subordinated…so the question is: What subordination do you have, and where should you be looking to find protection against it?