Our Legal Insights Blog

In Part 1, I walked through what fifteen years did to the Optional Redemption, Debt, and Restricted Payments covenants in Capsugel's documentation, comparing the 2011 unsecured bond against the senior secured deal marketed last week. In this part 2, we continue the review of how, provision by provision, the borrower gained flexibility with the loan market's fingerprints all over the bond.

We keep hearing that covenants have erodedover the past 15 years, but how many of us know what that really means in practical terms?

On the last day of April, I sat down for breakfast with a small group of senior credit professionals in Melbourne. It was the second of two Australian sessions in the documentation risk roundtable series, part of FLT’s Covenant Exchange initiative. It was the sixth stop after Amsterdam, Los Angeles, Paris, Seoul, Tokyo, and Sydney. 

This week I convened a Covenant Exchange roundtable in Sydney. Participants from private credit, super fund, family office, asset management, and legal shared views on documentation risk, and the conversation ranged across jurisdictions and case studies. The repeating theme, which we’ve seen at each of these events, was that documentation matters, and so does everything that sits on top of it.

The LMA's first Tokyo conference welcomed over 300 people to hear from European credit managers and Japanese LPs. Documentation was center stage, and it matters at two levels: the loan agreements between borrowers and lenders, and the CLO indentures between issuers and noteholders. Japanese investors are paying attention to both.

The Japanese LBO market still has what disappeared from the US and European markets a decade ago: a commercial bank on the senior piece and a maintenance covenant still in the deal. Last night at the Andaz in Tokyo, we sat down for the second Covenant Exchange dinner of this APAC run to work out how long those things will hold. I was delighted that the conversation went deep into Japanese market structure - I had so much to learn.

I was delighted to attend the PDI Seoul Forum this week. Two hundred and fifty attendees, fourteen countries, and a program built around the question every allocator in the room was already asking. What is behind the recent private credit headlines, and should it change how capital gets deployed from here?

The fourth stop on my global documentation risk roundtable series brought me to Seoul, and it was one of the most diverse conversations in the series so far. The room included professionals working across real estate, private credit, infrastructure, life insurance allocation, fixed income, and fintech. Different asset classes, different parts of the capital structure, and a very different legal and cultural context to the European and US markets I spend most of my time in.