Interested in training for your team? Click here to learn more

Structuring Uptier and Drop-Down Financing Transactions: Crafting Loan Terms to Manage Exposure and Mitigate Risks

Lessons Learned From the Serta Simmons Case and Other Recent Liability Management Transaction Cases

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

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Thursday, October 19, 2023

Recorded event now available

or call 1-800-926-7926

This CLE webinar will discuss recent financing trends with drop-down and uptier liability management transactions (LMTs). The panel will provide suggestions for borrowers and lenders when crafting and structuring loan documents to manage exposure and mitigate risks in light of recent cases construing these types of agreements.

Description

LMTs have become commonplace over the past few years and they typically take the form of either drop-down or uptiering transactions. With a drop-down transaction, the borrower forms and transfers collateral for its existing debt to an unrestricted subsidiary, allowing the subsidiary to incur new debt secured by the contributed assets and resulting in such assets no longer being available to secure the original debt. In an uptiering transaction, the borrower incurs new debt provided by a group of lenders, usually a subset of the existing lenders, resulting in the debt owing to the other existing lenders being subordinated to the new debt.

Once a disfavored strategy, LMTs have become an alternative strategy for companies and their sponsors to attempt to navigate near-term financial headwinds (e.g., a challenging liquidity position or upcoming maturity wall). LMTs allow borrowers to "realign" their capital structure by working with select creditors and stakeholders to issue new senior-secured indebtedness using controversial interpretations of the covenants in the borrower's existing financing documents.

Recent high-profile cases (Serta Simmons) have held that a technical reading of some financing documents may support the argument that uptier and drop-down transactions are permitted. However, many market participants have expressed concern that these transactions violate the spirit of such documentation and upend the fundamental tenets of the loan market.

Reconciling the competing interests of borrowers and lenders when negotiating the provisions of loan documents is challenging. While market conditions will dictate a borrower's or lender's negotiating leverage, both sides have the incentive to agree to clear, comprehensive, and unambiguous language to reduce the likelihood of future litigation.

Listen as our authoritative panel of experts provides an overview of the structural elements of uptier and drop-down transactions and examines practical changes that should be made to loan documentation to address the concerns of lenders and borrowers.

READ MORE

Outline

  1. Types of LMTs
    1. Drop-down transactions
    2. Uptiering transactions
  2. Competing objectives with drop-down and uptier transactions
    1. Lender's perspective
    2. Borrower's perspective
  3. Recent developments in LMT litigation and restructuring strategies (Serta Simmons)
  4. Liability management-related provisions that parties should consider when negotiating loan documents
    1. Investment covenant and unrestricted/excluded subsidiaries
    2. Release of all or substantially all collateral
    3. Pro-rata sharing
    4. Refinancing language
    5. Remedies
  5. Key takeaways and practical considerations
    1. Rethinking loan documentation based on market conditions and recent cases
    2. Tailoring loan documentation to fit the particular transaction: no one-size-fits-all solution

Benefits

The panel will review these and other key issues:

  • How are drop-down and uptier transactions structured?
  • What are the competing objectives for lenders and borrowers with LMTs?
  • How should the risks associated with LMTs be addressed in loan documents?
  • What are the recent developments in LMT litigation and restructuring strategies?

Faculty

Mason, Valerie
Valerie S. Mason

Member
Otterbourg

Ms. Mason is a member of the Banking and Finance department and Co-Chair of the Lender Finance practice group. ...  |  Read More

Morse, David
David W. Morse

Partner
Otterbourg

Mr. Morse is member of the firm and presently co-chair of the firm's finance practice group.  He represents...  |  Read More

Access Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. All formats include course handouts.

To find out which recorded format will provide the best CLE option, select your state:

CLE On-Demand Video

Download