Our Legal Insights Blog

There are several ways that subordination can be embedded in a capital structure and covenant package, and given how important it is to knowhow much debt can potentially be repaid ahead of you, this blog explains three different types of subordination and how to find them.

Before you embark on any covenant analysis journey for any given deal, you need to know where you’re starting out from before you can analyse where things might be headed.

We’ve decided to make a series of those lessons available to the market. In the series, we take you step-by-step through covenant analysis across each key area of the covenant package.

Last week we learned how to analyse the capital structure and credit support in a deal to determine Point A, or day one subordination risk and the collateral package. Today we are diving into the analysis of Point B – how this position could change over time.

It was a pleasure to speak with Geoff Castle of PenderFund’s lead fixed income portfolio manager on their Profiles in Credit podcast. Our conversation made covenants fun whilst at the same time underscoring their strategic importance to credit investors.

When it comes to analysing potential value loss, there are two important analyses to keep in mind. One relates to the Debt and Liens covenant, which can impact your day one position in the capital structure.

Analysing potential value loss starts with the Restricted Payments covenant (which we wrote about last week, and continues with the Asset Sales covenant, where some of the most significant changes to the covenant package have taken place over the past decade.

Students of FLT’s Leveraged Finance Covenant Training get the best of both worlds – a comprehensive online covenant curriculum available on-demand and across devices, and periodic live events where we deep dive how the materials covered in the course come into play in their day-to-day roles.