Our Legal Insights Blog

Lenders pushed back on Cedacri S.p.A.'s €980 million senior secured notes due 2031, and the revised terms make a substantial list of changes to the preliminary offering memorandum dated November 9th. The credit facility basket was halved, the cost savings add-back was capped at 35% of EBITDA, the portability test was tightened from 2.5x to 2x, and any Event of Default now blocks dividends. It was encouraging to see lenders win these concessions.

Earlier in the week, I wrote about how Recordati could not only sell Specialty & Primary Care or Rare Diseases, each about half of group EBITDA, with no change of control put, no size limit other than “not both” and no time limit, but the sale would also unlock a redemption right at 102%.On October 29th, after lender pushback on the provision, and the flexibilities more broadly, the borrower published a raft of changes tightening terms - including removing the 102% call.The other provisions around the sale persist - alongside what remains a very flexible set of covenants. The pattern - extremely loose protections, including novel provisions which are ultimately removed leaving a still-borrower-friendly covenant package - is the same in all three.

Recordati's preliminary terms include a call at 102 following a "Specified Asset Disposition." The question for lenders is what has to happen before the Issuer can use it, and how much of the notes it can then redeem. FLT’s Primary Market Education Series review covers ten notable features of the documentation, from the acquisition structure and security package to restricted payments and voting.

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. It was encouraging to see lenders win 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.