The inclusion of a Restricted Payments carve-out allowing an issuer to make payments outside the restricted group if it can meet a leverage ratio has now become a standard basket in the European High Yield market.
As noted in our Aggressive Terms in High Yield 2016, this leverage ratio carve-out is problematic as it erodes the traditional cash leakage protection based on the cumulative approach of the CNI build-up basket.
For the first quarter, the presence of these baskets has been high. Some 89% of deals in January, 73% in February and 83% in March all contained this type of basket. When compared to the 63% of all deals in 2016 and 59% of all deals in 2015, it indicates the continued growth of this term in deals.
Debt Explained's high yield bond database, Market Maker, tracks a number of controls relating to restrictive payments. Subscribers can log in to track the ratio referenced for the basket; whether this ratio is close to the opening ratios; and whether payments made from the ratio-based basket do not reduce any future capacity under the CNI build-up basket.
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