Octus Radio Americas Core Credit: Webinar Replay - Covenants 101: Value Leakage (Oct. 29, 2021)
37 snips
Nov 1, 2021 Topics discussed in this podcast include value leakage in credit agreements, transfers to non-guarantors restricted subsidiaries vs transfers to unrestricted subsidiaries, the significance of proceeds baskets, and ways to address value leakage in retail companies.
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Don't Rely On Immediate Loops
- You cannot rely on a simultaneous transfer/ dividend loop to evade restricted‑payment covenants because indirect dividends are typically prohibited.
- Expect that immediate circular transfers would be challenged even if the law is unsettled on delayed uses.
Proceeds Basket Can Open A Trap Door
- Proceeds or "trap‑door" baskets can convert limited non‑guarantor investment capacity into broader general purpose capacity.
- These clauses enabled J.Crew to route investments into unrestricted subsidiaries via proceeds mechanics.
Related‑Sections Multiply Capacity
- Related‑sections mechanics let firms reallocate capacity across baskets, multiplying apparent investment power.
- Apollo‑style provisions can therefore enable transfers to unrestricted subsidiaries without new baskets.