It’s been a busy year for covenant flexibility in the leveraged finance market, and FLT HQ has been tracking many of the key trends through ourblogs and YouTube videos. We published 26 blogs and 33 videos this year, absolutelypacked with legal knowledge and practical insights. You can read all of the blogs here and watch the YouTube videos here.
In this final blog of 2024, we present some of the covenant and educational highlights of 2024.
Borrowers can access capacity with greater ease
The most important trend of 2024 is the greater ease with which borrowers can now access capacity – several deals added provisions that will cause capacity across the board to go up but never down, and fewer deals contain traditional default and ratio-test blockers to accessing Restricted Payments capacity.
Builder baskets now commonly launch with zero floor provisions, which can appear in a number of different ways (see our blog on the topic here). In addition, several deals contained super grower provisions, which cause the fixedamount of a fixed / grower basket to increase in line with the EBITDA grower but will never reduce back down if EBITDA declines (see our YouTube video comparing ASK Chemicals and Omnia Technologies for an explanation on how these provisions work).
Terms that facilitate future LMEs
A very close second to this is the trend of borrowers and sponsors looking ahead to LMEs even as new deals are being launched. The clearest example of this trend is reflected by the deals launching with provisions that would block lenders from entering into coop agreements.
This is obviously an attempt on the part of borrowers and sponsors to maintain control over circumstances surrounding any future LME. Lenders should remain vigilant of additional instances of this flexibility in 2025.
More flexibility, especially for calculations
Enhanced calculation flexibility was added to many deals in 2024, including Lottomatica, Bertrand Franchise, and Omnia Technologies. This was primarily through the addition or enhancement of theFinancial Calculations covenant.
It is impossible to calculate covenant capacity precisely withouta strong understanding of this provision, which FLT describes in detail in our Leveraged Finance Covenant Training course, and in a separate module that appears in our Advanced Covenant Analysis course.
We have seen the art of the possible play out in reality
That fated week in March 2024 illustrated with cruel perfectionthe art of the possible, as Altice warned lenders of their unrestrictedsubsidiary leverage (no pun intended), and Ardagh accessed financing in anuptier from Apollo.
We published a YouTube video walking step-by-step through the Altice transaction, and in January we will launch a new course from market veteran Glenn Zahn analyzing the Ardagh transactions.
Grasping legalese and contractual analysis is more important than ever
Given these trends and events in 2024, in the coming year it is more critical than ever for market participants to fully grasp incumbent documentary flexibility. That’s why we continue to create resources to support just that.
In 2024, we published four new courses, including ourPractical Analysis Skills course, designed to facilitate a practical application of covenant analysis knowledge. We also introduced the Primary Market Education Series, which uses high yield deals in the primary marketas a teaching tool.
We also created the High Yield Mind Map tool, which we plan to continue to build on in 2025. Also coming next year is The Framework, a powerful analysis tool created by our founder, Sabrina Fox, and delivered for the first time on January 8th at The Ned. Click here for more information on the event and to register.
Educating the market on covenant provisions is our passion, and we look forward to continuing to support your covenant education journeys in 2025!