Hybrid US/European restructurings can lead to unexpected commercial outcomes because of different practices in intercreditor agreements.
The US loan markets continue to attract European borrowers whenever US pricing dips below its European counterpart. Over the last twelve months the number of credits coming to the US loan market with significant European components has continued to increase. While the terms and conditions of US credit agreements may not need substantial adjustment to reflect the inclusion of European loan parties, there likely will be some provisions borrowed from European loan documentation, particularly with respect to the guarantee and collateral package. More significantly, however, structuring issues will arise that will not be immediately apparent to market participants more familiar with US financing structures and documentation. The document that best illustrates this is the intercreditor agreement, in which the approaches on the two sides of the Atlantic differ dramatically. This article discusses modifications to US-style intercreditor agreements that would be desirable if European loan parties are involved, whether as borrowers or guarantors.
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