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EBITDA is the Monoculture Metric


EBITDA-based grower baskets are now firmly embedded in negative covenants in senior facilities agreements (“SFAs”) for leveraged loans i.e. a general debt basket of “the greater of £X and Y% of consolidated EBITDA”.

Presence of at least one soft-cap based on EBITDA/Total Assets

Presence of at least one soft cap based on EBITDA or Total Assets


However, sponsors are not only interested in pushing up the percentages as much as they can in these EBITDA growers, they are now planting the growers further afield from the negative covenants, and it seems to be proving fertile ground. Our Representative Loan Terms database tracks just how far this land grab reaches into the SFA.

For example, the annual excess cashflow sweep, where the group offers to prepay lenders participations using a percentage (determined based on a leverage ratio at the time) of excess cashflow, now often uses a “greater of £X and Y% of consolidated EBITDA” threshold under which no such offer is made.

Excess cashflow sweep: percentage of deals with an EBITDA grower in the de minimis

Events of Default: certain threshold amounts (including for cross-default / acceleration) contain a "grower"

 

The grower is also found in the provisions requiring an offer to prepay participations from listing, disposal, insurance and acquisition claim/report proceeds.

Listing and Mandatory Prepayments with an EBITDA grower

In the last six months we have also seen the EBITDA grower reach as far as the events of default, where the cross payment-default/cross-acceleration event of default had an EBITDA grower in one deal at 15%, and in a more recent deal (with a different sponsor) at 30%, of consolidated EBITDA; it might be expected that these areas too will see percentages of EBITDA getting taller and taller.

Related Articles 

European Leveraged Loan Digest 2017

Weaker Covenants Raise Big Concerns in Loan Deals 

The Chairman's View: The Barricades have Fallen on Transfers  

About This Report

This report refers to data drawn from Debt Explained’s Representative Loan Terms (RLT) database which tracks information from syndicated deals in the European leverage loan market.

The report is based on those deals which were in the market from 1 January to 31 December 2017, as indicated, and which were reviewed by Debt Explained during this period. These figures have been prepared solely on the basis of deals done under European law.

Debt Explained’s Market Maker and RLT databases offer unique oversight of the European high-yield bond and leveraged loan markets, with more than 550 and 250 searchable terms respectively. A staple resource for all leveraged finance market participants – including capital markets bankers, legal advisors and asset managers – Debt Explained data reacts to the market in real time: subscribers receive detailed deal snapshots on new issues as information is released.

About Debt Explained

Debt Explained was founded by Stephen Mostyn-Williams in 2009, a Senior Partner at four international law firms and the co-founder of the European High Yield Association, now AFME. We are staffed by experts in leveraged finance with extensive experience in Capital Markets and Banking & Finance. All have deep knowledge of our product areas.

For further information about this report or Debt Explained, please contact us at info@debtexplained.com

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