Even as the global economy begins to recover from the effects of the pandemic, and commercial bankruptcy filings start to decline, companies may still seek to amend and re-negotiate their credit agreements with lenders or access new sources of financing in order to maintain liquidity and avoid bankruptcy.
In this study, we examine how high-profile companies, like J.Crew, Cirque du Soleil, and Neiman Marcus, have leveraged credit facility baskets to effectively restructure debt, and access additional funding by transferring collateral to unrestricted subsidiaries not bound by negative covenants.
To provide further insight into how the market was addressing general baskets for investment restriction negative covenants, our in-house lawyers—powered by Kira—reviewed over 150 publicly available credit agreements to identify agreements with potentially enhanced risk of collateral leakage.
Inside, you will discover:
- Potential indicators of weakness in financial covenants;
- The prevalence of unqualified general baskets in investment restriction negative covenants in over 150 publicly available credit agreements, along with other relevant data points;
- For lenders, the importance of evaluating financial covenants for “trap doors” and practical steps to mitigate risk of collateral leakage or transfer; and
- For borrowers, the importance of evaluating financial covenants for language that may help facilitate creative transactions to create additional liquidity while remaining in compliance with credit facility obligations.