“Need to know” | Leveraged Finance Market Update

Written on 30 Sep 2020

Welcome to the latest edition of Need to Know, Osborne Clarke's Leveraged Finance Market Update, offering a bite-size guide to UK mid-market developments.

Unsurprisingly, the Covid-19 pandemic continues to impact activity significantly. Since the last edition, our recently expanded team has been focussing predominantly on supporting clients to access liquidity (including through the government lending schemes) and to navigate amendment and waiver processes as participants take stock of the impact of the pandemic. In one of our summer Insights we looked at how debt funds have been reacting to the pandemic. We have also been involved with a number of more fulsome debt restructurings.

At the same time, we have continued to support lenders and borrowers in concluding new deals for businesses with a positive narrative around the recent and anticipated future impact of Covid-19, most notably in the TMC sector. We have also seen strong activity levels amongst our asset-based lending experts. Across the board, though, we have seen processes taking more time and involvement to get across the line.

Over the coming quarter and as we move into Q1 2021, we see attentions turning on the one hand toward more substantive solutions for underperforming or over-levered businesses. In this regard we will be keeping a keen eye on government-backed support measures that might impact our clients. On the other hand, there will be a focus on arranging longer term new financing for a broader range of businesses than those that have successfully raised capital over the summer.

We believe the scene is therefore set for leveraged finance market participants to scrutinise closely their respective rights and options under existing and prospective financing documents as we head into Q4. In this edition we highlight two of the areas that are likely to come into sharper focus:

Transfer provisions: assign of things to come

Over the coming months, lender downside protection will be a focal point for lenders and borrowers alike. For existing lenders, contingency planning will include recovery options under existing documentation. As well as for incoming lenders, who will have a more keen eye on preserving future flexibility to manage their loan positions.

Transferability – or the lack of – will feature high up on the list of portfolio reviews and new deal negotiated points, and not just on liquid deals. We consider recent deal terms and some of the issues to be alert to.

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Assessing the impact of COVID-19 on EBITDA: EBITDAC

Earnings before interest, tax, depreciation and amortization (EBITDA) of borrowers will have reduced from previously projected levels as a result of Covid-19 for a significant majority of borrowers. We reflect on the treatment of EBITDA in documents of the impact of the pandemic.

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We hope you find our Insights of interest. If so, you might also wish to join Osborne Clarke's forthcoming webinar entitled 'Recapitalisation: managing the COVID-19 debt' – please register here>

Osborne Clarke is a full-service, sector-focussed, international law firm. Our leveraged finance and private equity teams are amongst the most experienced and active across the breadth of the UK mid-market. For further details of our capabilities and experience, to discuss any of the issues raised in this update, or to explore how our team might be able to help you, please contact Laurie, Max or your usual Osborne Clarke contact.