In what could be seen as a refreshing turn in the leveraged finance market, this week’s refinancing for Iliad has brought some welcome surprises. We grew increasingly optimistic about the direction of terms during our review of the document compared with the previous deal.
The Good News
Leveraged finance covenant terms haven’t given us reason to celebrate lately, with more loopholes than ever appearing in deals, but this deal is different. It's like watching the pendulum swing back towards better lender protections, and here's why we're excited:
1. Show Me the Money: Asset Sales Protection
The new requirement for 75% cash consideration in asset dispositions is like adding a sturdy lock to the front door. This provision kicks in for significant transactions and ensures that value isn't leaked away through non-cash deals.
2. Transparency Takes Center Stage
Perhaps what's most encouraging is the push towards greater transparency. The new requirement for conference calls with quarterly and annual reports isn't just about ticking boxes - it's about creating real dialogue between borrowers and lenders. In today's market, this kind of engagement is worth its weight in gold.
3. The Return of the Payments for Consent Covenant
In what feels like a victory for balanced lending practices,this deal is bringing back the Payments for Consent covenant. This might seem technical, but it's a crucial protection that prevents borrowers from playing favorites among lenders with amendments. This is particularly useful in the current context of lender-on-lender violence.
4. Reduced Financial Calculation Flexibility
The deal includes several reductions to the borrower’s ability to calculate capacity in a way that could be detrimental to lenders, including:
* No ability to deduct revolving debt from ratio calculations
* 20% cap on EBITDA add-backs for synergies and forward synergies
* Removal of the super grower provision
Looking Forward
The key question is whether this signals a broader shift inthe market. At a time when many have grown accustomed to seeing protections eroded, this refinancing shows that the pendulum can swing both ways.
Get Involved
For those interested in exploring these kinds of analyses, our Primary Market Education Series offers detailed insights into covenant developments using primary market deals as a teaching tool. We're committed to helping professionals understand these crucial changes and their implications, so don’t hesitate to get in touch to find out more!
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