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Structuring Covenants in Leveraged Financing and High-Yield Bonds

Additional Debt Covenants, Equity Cures, Builder Baskets, Restricted Subsidiaries, Events of Default

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Thursday, May 4, 2023

Recorded event now available

or call 1-800-926-7926

This CLE course will examine current market terms and conditions for leveraged loans and high-yield bonds and the characteristics common to each type of financing. The panel will discuss various covenants, including additional debt provisions, equity cures, builder baskets, and other key terms and conditions from both the borrower and lender perspectives.

Description

Due to investor appetite for higher yield bonds, strong demand continues in the market for the issuance of covenant-lite leveraged loans and high-yield bonds with similar covenants.

Prevailing trends are the issuance of loans and bonds that do not contain maintenance covenants. Alternatively, documentation may include springing maintenance covenants, performance cushions, and equity cures. Often borrowers are allowed to incur additional debt, make acquisitions, and repay subordinated debt. Covenant-lite loans may include "builder baskets" to fund these other transactions.

As with high-yield indentures, the parties may determine that some subsidiaries are "unrestricted" and not bound by the leveraged loan covenants. The deal often also includes one or more subsidiary guarantors. Counsel should understand the ramifications of each for the borrower and the loan.

Listen as our authoritative panel examines and compares terms and conditions contained in leveraged loans and high-yield bonds. The panel will review current covenants from both the borrower and lender perspectives.

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Outline

  1. Current leveraged loan covenants
    1. Equity cures
    2. Additional debt
    3. Acquisitions
    4. Investments
    5. Repayment of junior debt
  2. Similarities of leveraged loan terms with high-yield bonds
    1. Restricted subsidiaries
    2. Builder baskets
    3. Events of default
  3. Opportunities and risks for borrowers and lenders

Benefits

The panel will review these and other key issues:

  • What are the market forces impacting covenants in leveraged loans and high-yield bonds?
  • What are the typical features of covenant-lite loans?
  • What are the typical features of high-yield lite covenant packages?

Faculty

O’Sullivan, Maura
Maura E. O'Sullivan
Partner
Shearman & Sterling

Ms. O’Sullivan has extensive experience in representing financial advisors, lenders and borrowers in various...  |  Read More

Steinberg, Michael J.
Michael J. Steinberg
Partner
Shearman & Sterling

Mr. Steinberg practices structured finance, corporate and bank finance law. He represents financial institutions, major...  |  Read More

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