The Summer Skirmish 

This summer, our legal team has observed a number of novel and unprecedented (at least in the European market) attempted incursions by sponsor machinations on lender (purportedly) rudimentary rights.

The “Group Deadline” Provision 

Amongst these aberrations (on which more to follow…) is the apparition of a provision we would exhort the TLB/institutional investor community to resist in the strongest terms, not least because it is couched in the most anodine of language (see overleaf in the Appendix for the verbatim wording).

Dissected and analysed, we believe this nefarious new mechanism affords borrowers (often inspired by the sponsors whose precedents are being set and their counsel, who set them) the following flexibilities under their documentation:

To request – on up to FIVE OCCASIONS – that the Agent allows delay of performance of ANY obligations – not merely limited to delivery of financial or other information (except regarding a non-payment or insolvency/insolvency proceedings Event of Default) – by the Restricted Group for up to 15 Business Days [that’s THREE WEEKS] on each occasion/for each request, WITHOUT requiring Majority Lender consent [which in the current market only requires simple majority concurrence anyway].

If such an indulgence towards borrowers in this documentary environment – that is already skewed heavily in their favour – does not raise alarm bells, then it is obviously within institutional investors’ prerogative to concede it.

The Steady Decline of Timing Discipline in European Loans 

However, we have been alerting our clients for many years now about the steady erosion of timing discipline across all their debt documents.

Back in 2016, we brought to high yield bond investors’ attention what we refer to as the “Whenever, Whatever” reporting provision or the “Deemed Reporting Cure”, which enables bond issuers to eschew timing discipline imposed in their reporting covenants and deliver their financial reports to their investors whenever the fancy takes them. See “HY Reporting Obligations: Whenever, Whatever!” (13 May 2016).

Lamentably, since that Special Report came out over a decade ago, “Deemed Cure” provisions have proliferated – not only in European HY bonds – but also in European Loans (which, for well over a decade now, have absorbed high yield bond characteristics to the point where we coined the acronym “HYBID” (High Yield Bond in Disguise”) to describe the phenomenon.

To date, we have discovered the “Group Deadline” provision in four indicative loan documents – three term sheets and one DRAFT senior facilities agreement. At time of writing, we are not aware of the provision having made it into final executed loan documentation, as yet.

At this point, institutional investors still have a chance to ensure their documentation (at least in this regard) is not lead down “the road to nowhere”…

APPENDIX 

Group Deadline Provision 

Xtract Research emphasis:

“In the event that any period specified for the Group to deliver any Financial Statements, documents or other information, perform any other act or comply with any other obligation expires on a day which is not a Business Day, that period shall be extended so as to expire on the next Business Day. The Agent shall, promptly following a request from the Company which includes an explanation for the requirement for an extension to a Group Deadline (other than any Group Deadline in respect of an Event of Default in respect of non-payment or insolvency/insolvency proceedings or a Default which, with the expiry of the applicable grace period would constitute an Event of Default in respect of non-payment or insolvency/insolvency proceedings or any Group Deadline for the payment of any amount under the Finance Documents) and a confirmation that the Company expects to comply with the applicable obligation by the extended Group Deadline, extend such Group Deadline by a period requested by the Company not exceeding fifteen (15) Business Days, provided that (x) no individual Group Deadline which has already been extended pursuant to this.

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