Transfers – Can You Get In?

• How freely transferable the instrument is
• Consent typically required for private loans; generally not for bonds
• Whitelists, blacklists and event of defaults
• Prohibitions on transfers to industrial competitors, loan-to-own/distressed funds, and PE houses and similar businesses
• Treatment of sub-participations and other synthetic transfers
• Minimum holds/transfer amounts
• Standardised trading terms (e.g., LMA distressed or par, LSTA)

Additional Debt and Lien Capability

• Debt capacity – ratio debt, “freebies”, hard caps and soft cap “growers”
• Ability to secure debt and ability to prime; negative pledge restrictions
• Ability to incur (and secure) structurally senior debt through non-guarantor restricted subsidiaries and temporally senior debt through inside maturity baskets
• Reclassification and carry forward/carry back
• Incremental term/revolving debt – who can provide, sidecars, MFN issues
• Reserved indebtedness

Financial Covenants

• “Cov lite” (springing covenant) or “cov loose” (single leverage covenant)
• “Springing” RCF covenant, i.e., only tested if RCF drawn to a certain per cent with certain exclusions taken into account
• Definitions – Consolidated Net Income, EBITDA, add-backs (including with regard to extraordinary items and restructuring costs, topical in current environment); material exclusions from indebtedness calculations; IFRS treatment
• Pro forma adjustments – total caps, independent verification and realisation periods
• Testing – timing and election for certain permissions
• Equity cures, deemed cures and auto-cures

Credit Support

• Guarantor coverage test and material deficiencies
• Transaction security; material asset security/qualifying floating charge
• Agreed security principles
• Jurisdictional issues

Other Key Covenants/Leakage

• Restricted payments
• Permitted acquisitions/permitted investments
• Unrestricted subsidiary designation and non-guarantors
• Asset sales/disposals

Events of Default

• Grace periods/other available cures
• MAE/audit qualification/cessation of business

Voting

• Consent, waiver and amendment thresholds
• All lender matters
• Ability to change scope/nature of security package
• Structural adjustments
• Sponsor/sponsor affiliate disenfranchisement
• “Snooze/lose” and “Yank the bank”

Debt Buybacks

• Sources of cash available
• Disenfranchisement

Intercreditor Issues

• Who drives enforcement
• Ranking of claims and security
• Option to purchase
• Release mechanics for non-distressed disposals/value safeguards for distressed disposals
• Standstills/payment stops for junior creditors

Path to Control

• Control strategies
• Fulcrum security/optimal enforcement point
• Intercreditor issues
• Holdout risks – under transaction documents and in practice
• Cram down/in risk
• Potential restructuring tools

Securitisation and Structured Product Considerations

• Public and private securitisations and the ability to access cheaper, scalable institutional funding at an earlier point of portfolio or business growth
• Diversity in capital structure
• Refinancing ability without sufficient cashflow amortisation
• Methods of complementing existing credit routes to maximise efficiency and returns

EQUITY INVESTMENTS

Initial Key Considerations

• Timing concerns, including “anti-phoenix” considerations
• Valuation and value-breakage, including prospects for recovery
• Ability to conduct diligence and obtain protections (such as W&I insurance on a synthetic basis), including geographical restrictions arising out of COVID-19
• Protections for corporate carve-outs and seller insolvency or other future unwind
• Antitrust, regulatory, creditor jurisdictional or other frustrating factors
• Share versus business sale or other creative structures (e.g., acqui-hire, licensing), including tax structuring and investment structuring vehicles (pref, government schemes, convertible equity)

Common Transaction Issues

• Existing shareholder dynamics
• Key contracts and leases, change of control provisions and third-party consents
• Related party arrangements
• Potential litigation
• Tax and pension liabilities

Employees

• Identification of key employees, including those outside the executive and management teams, and termination of under-performing executives and associated cost
• Impact of TUPE
• Works councils or similar institutions
• Management rollover and incentive arrangements

Ongoing Governance – Control or JV

• Rollover
• Key shareholder agreement provisions:

Future funding obligations
Board representation and reserved matters
Deadlock and exit
Management incentives and waterfall