Our Legal Insights Blog

Much ink has been spent, and more will no doubt flow, following the write-down of Credit Suisse’s AT1 notes. The implications of the Swiss regulator’s actions spread far beyond that jurisdiction, or indeed that particular asset class, and lessons are being learned by investors across the leveraged finance ecosystem.

The challenges facing Credit Suisse AT1 bondholders illustrates well why my answer is always the same, regardless of the borrower in question: start by reading the Risk Factors.

There has never been a more critical time to invest in an insurance policy that can help protect lenders and other market participants against further shocks – education.

The thoughtful drafting uses a standard high yield covenant package as a template, then artfully pares back flexibility that could impede lenders’ right to be paid coupon and principal at maturity.

Last week, Bloomberg published a story called ‘Fake Ebitda’ Masks Risk in Debt-Laden Companies, noting how bad management is at forecasting EBITDA.A report from S&P reveals that 97%of sub-IG companies that announced acquisitions in 2019 fell short of EBITDA forecasts in their first year of earnings.

What are the goals of the other parties in the deal. Recent cautionary tales from the U.S. of “creditor on creditor violence” put this question in a slightly different light.

Contractual analysis done in isolation is inherently incomplete. Contracts do not exist in isolation – they are promises made by the parties to the agreement, and the identity of the parties always matters.

Unrestricted Subsidiaries did not always strike fear in the hearts of lenders. I explain in the first chapter of the Leveraged Finance Covenant Training course that back in my baby lawyer days these entities were fairly benign from a lender-perspective – indeed, they might even bode well for investors.