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The Transfer Window Narrows for Lenders


Debt Explained, the leverage finance data and analysis company, has released data showing that Borrowers are increasingly pushing back on Lender’s freedom to transfer a loan – even in default.

At the heart of negotiations over transfers are two competing desires - that of Lenders to have the right to trade as freely as possible in the secondary market, and that of Borrowers and Sponsors to retain control over the identity of their Lenders.

As with many other terms, it seems that Borrowers seized the opportunity offered by market conditions during the second half of 2016 to negotiate away from the traditional position.

The data is drawn from Debt Explained’s Representative Loan Terms (RLT) database which has been expanded and upgraded in relation to transferability in response to market developments in this area.

Findings include:

  • To date this year, 27% of English and other European law deals do not allow free transferability during all Events of Default.
  • Whilst Borrowers appear happy to accept the general principle that they will not act unreasonably in giving consent to transfer, there have been significant carve outs for certain types of Lenders. One in five (20%) of deals in 2017 have removed the requirement to act reasonably in withholding consent to a transfer of debt to a distressed debt/loan to own investor or hedge fund.
  • One area in which the goalposts have moved in Lenders’ favour is in the speed of response required from Borrowers if they wish to refuse consent, with over 50% of Lenders achieving a timeline of five business days or less so far in 2017

Stephen Mostyn-Williams, Chairman of Debt Explained, explained that these changes are being negotiated during a period of historically low default rates. With the increasingly detailed negotiation around the different types of Event of Default, it will only when economic conditions deteriorate that the full impact will be felt by the Lenders  holding the loans at that time.

“There has always been a dynamic between terms (including pricing) and liquidity (being the right “exit”). Restrictions on transferability went hand in hand with better terms. Now the market has been driven to worse terms and greater restrictions on transferability.

“It is only by using data drawn from across the market as a whole that Lenders can understand the extent of the changes being made on transfers. While on a deal by deal basis, these may appear to be small changes, when combined they show how much the Lender’s rights – particularly in a situation of default – have been diminished. Manageable perhaps on a single deal but watch out if there is a general fall off in credit quality. Lenders may be stuck with truly illiquid credits. ”

For further information on Debt Explained please contact Sophie Belcher on +44 (0) 20 7100 9777 or sophie.belcher@debtexplained.com

 

About This Report

The data is drawn from Debt Explained’s Representative Loan Terms (“RLT”) database tracking information from syndicated leveraged loans in the European market.

The data on transfers is part of a new and expanded section of the database offering subscribers searchable, granular information on the presence of these provisions in the leveraged loan market. Debt Explained is a leader in providing data and analysis on the leveraged finance market and we are continually evolving our offering based upon client feedback.

The report is based on those deals which were in the market during 2016 and 2017, as indicated, and which were reviewed by Debt Explained during this period and no distinction is made between deals with different governing laws unless otherwise stated. Unless otherwise stated, all data was drawn from RLT on 14 June 2017 and refers to deals done under the laws of England and Wales, France, Germany and Italy.

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 350 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 is a leveraged finance data firm and the only independent provider of High Yield Bond and Leverage Loan Legal Analysis in the European Market. In addition to storing analyses in custom, searchable databases, the company sends out timely and finely-tuned “snapshots” following the activity of the primary and secondary markets.

Debt Explained was founded in 2010 by Stephen Mostyn-Williams, previously a Senior Partner at four international law firms and the chair and co-founder of the European High Yield Association. It is staffed by experts in Capital Markets and Financial law with extensive experience in new issuance, corporate advisory work and restructurings. We pride ourselves on hiring extremely experienced professionals as we know the level of expertise that is required to put deals together. As a consequence we only hire lawyers with at least 10 years in capital markets or financial law and with deep knowledge of our product areas.

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