Negative undertakings

Once the high yield bond and loan areas have converged as time passes, different high yield relationship covenant elements have already been included into leveraged loans. In lot of means (and beyond the scope that is main of article), it has added elements which have increased the size of loan agreements either with the addition of brand new conditions, or making current provisions a lot longer. By means of examples:

• Financial incurrence ratios – many cov-lite loans allow indebtedness to be incurred in conformity with particular ratio-based incurrence that is financial. These frequently include either a leverage that is net test and/or a set cost protection ratio test for unsecured or junior guaranteed indebtedness and a senior guaranteed leverage ratio test for guaranteed indebtedness. The LMA leveraged loan contract, as an example, will not look after such ratio indebtedness. The definitions for every of the ratios can achieve a few pages, including conditions pertaining to purchases and disposals, incurrences and repayments of indebtedness, and synergies or cost-savings pertaining to the relevant actions that are corporate.
• Dividends/restricted payments – relationship covenants frequently allow dividends away from a “build-up” container which comprises a 50 percent of consolidated income that is net, plus other build-up components. This supply and also the relevant definitions can set you back a few pages. Read more