Navigating Restructuring and Liability Management in Leveraged Finance

In the rapidly evolving field of leveraged finance, understanding the legal and strategic maneuvres that shape high-stakes outcomes is crucial to staying ahead and managing both risks and opportunities. The announcement about Altice’s restructuring negotiations with its lenders, and the growing use of liability management blockers of various formulations are two recent examples that can provide key insights for investors navigating these complexities.

Both topics highlight the evolving tactics used by lenders to safeguard their interests.

In this blog we explore their significance and what they might mean for professionals in leveraged finance. You can also refer to the recent video posted by our founder, Sabrina Fox, on Fox Legal Training’s YouTube channel, available here.

The Altice Restructuring: A Case Study in Lender Protections

Altice’s ongoing negotiations with its lenders has been a focal point for market participants as it showcases how lenders assert claims during distressed situations. The situation illustrates the willingness of borrowers to use flexible terms.

A key takeaway the Altice scenario is the borrower’s strategic use flexibility in its existing debt agreements to move assets away from lenders. Now its lenders are using the restructuring process as an opportunity to negotiate tighter terms, highlighting the importance of understanding contractual provisions. This reinforces a fundamental lesson: scrutinizing the fine print of finance agreements is much more than just a routine exercise: it’s a critical safeguard.

Clauses involving moving collateral out of lender packages, releasing guarantees, and increasing debt subordination can drastically affect recoveries during restructuring. As such, lenders must understand the legal mechanics at play, particularly when seeking to block actions such as collateral transfers or priority shifts.

Liability Management Blockers: A Defense Against Uptiering

Liability management transactions —particularly non-pro rata up tiering— have become an increasingly topical issue in recent years. Borrowers often exploit weaknesses in credit agreements to prioritize one group of lenders over others. An example which illustrates this issue is the J. Crew case, where the company found a way to shift valuable assets out of lenders' reach, leaving many creditors at a disadvantage. This move sparked strong opposition from lenders, who saw it as unfair.

In response, creditors have started embedding specific provisions, known as “blockers”, to protect against unfavorable liability management maneuvres. These provisions help ensure that borrowers can’t easily sidestep their obligation to repay par at maturity, protecting lenders from being subordinated in these scenarios.

Liability management blockers are increasingly common in today’s leveraged finance market. For investors, they act as a reminder to analyze deal documents critically and look for protections against potential borrower tactics. Whether facing a restructuring like Altice or an amendment enabling up tiering, proactive risk mitigation is essential.

The Common Thread: Control and Value Preservation

Both Altice’s restructuring and the rise of liability management blockers reflect a broader struggle between borrowers and lenders over control and value retention. Borrowers continually seek greater flexibility within credit agreements, while lenders work to pre-emptively close loopholes and assert their rights.

For investors, these developments highlight how credit agreements are no longer just standard legal documents—they are strategic documents where every clause carries importance and weight. A deep understanding of these evolving dynamics equips investors to better ascertain risk and seize opportunities in today’s leveraged finance market.

Why Does This Matter for Investors?

The implications for leveraged finance investors are clear. To stay ahead, you must:

• Scrutinize finance agreements in detail, with a particular focus on collateral arrangements and priming flexibility.
• Monitor market trends, like the increasing use of liability management blockers, as they signal shifts in borrower-lender dynamics.
• Work closely with legal advisors to ensure protections are in place before challenges arise.

Investing in leveraged finance is about more than analyzing credit ratings or financial statements. It’s also about having a deep understanding of deal terms and how they’ll hold up during distressed situations.

To gain a deeper understanding of these legal developments and their impact on your investments, explore our first-of-its-kind legal education platform. View our course offerings at www.foxlegaltraining.com.

In today’s environment, understanding the fine details of credit agreements isn’t optional—it’s essential for making informed, strategic investment decisions.