Presenting a live 90-minute webinar with interactive Q&A Restructuring Unitranche Loan Facilities: Navigating the Unique Aspects of Agreements Among Lenders Rights and Remedies of First-Out and Last-Out Lenders Inside and Outside of Bankruptcy THURSDAY, MARCH 30, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Gregory M. Bilton, Partner, Riemer & Braunstein , Boston Brad B. Erens, Partner, Jones Day , Chicago Rachel L. Rawson, Partner, Jones Day , Cleveland The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Restructuring Unitranche Loan Facilities: Navigating the Unique Aspects of Agreements Among Lenders Rights and Remedies of First-Out and Last-Out Lenders Inside and Outside of Bankruptcy Gregory M. Bilton gbilton@riemerlaw.com Brad B. Erens bberens@jonesday.com Rachel L. Rawson rlrawson@jonesday.com
UNIQUE INTER-LENDER ISSUES IN UNITRANCHE LOAN FACILITY • General Considerations – Voting Arrangements – Buy-Out Options • Last-Out Loan Holders • First-Out Loan Holders • Who has priority if both are given? – Right of First Offer – Application of Payments Pre-Waterfall – Application of Payments Post-Waterfall – Who is the Administrative Agent? FO or LO holder 6
UNIQUE INTER-LENDER ISSUES IN UNITRANCHE LOAN FACILITY • Bankruptcy Issues – Voting Arrangements • May provide evidence of single class in bankruptcy (especially with lender insider affiliates) – Jurisdiction and Enforceability: Will bankruptcy court have jurisdiction to enforce Agreement Among Lenders (AAL) • Typically Borrower is not party to the AAL – Claim Classification: All lenders grouped as single-class • Higher Risk of Cramdown • Higher Risk of FO Lenders found to be undersecured loss of right to collect interest and fees in insolvency proceeding 7
POWER TO CONSENT TO RESTRUCTURING A UNITRANCHE LOAN FACILITY • Typical Positions Under Credit Agreement – Sacred Rights: Unanimous consent and consent of each Lender affected thereby – Required Lenders • 50%/2 • Other formulations (i.e. hardwiring club Lenders, hold sizes) – Unique Considerations • Cross-Over Voting (Intercreditor examples) • Affiliated Debt Funds (see LSTA form language) • Affiliated Equity Funds (see LSTA form language) 8
POWER TO CONSENT TO RESTRUCTURING A UNITRANCHE LOAN FACILITY • AAL Alterations – Sacred Rights: Unanimous Consent and Consent of each Lender affected thereby unchanged – Required Lenders • Includes Required FO Lenders and Required LO Lenders • 50%/2 for each class • Specific restriction that if Required FO Lenders constitute Required Lenders under Credit Agreement than agreement not to vote without consent of Required LO Lenders and vice-versa – Unique Considerations • Cross-Over Voting: – disregard (or deemed to consent) for FO Lender voting except for sacred rights and vice versa – No restrictions if threshold of pro rata shares of applicable class • Affiliated Debt Funds • Affiliated Equity Funds 9
RIGHT TO EXERCISE REMEDIES PRIOR TO THE COMMENCEMENT OF A BANKRUPTCY PROCEEDING What is exercise of remedies? “the diligent pursuit in good faith of the exercise of any secured creditor enforcement rights or remedies that are available upon the occurrence of an Event of Default with respect to any Loan Party, any other obligor party to a Loan Document, or any Collateral” (i) the acceleration of the Obligations (ii) the delivery of a notices to spring control agreements (iii) the solicitation of bids from third parties to conduct liquidation of all or a material portion of the Collateral (iv) the engagement of third parties for the purposes of valuing, marketing, and promoting a sale of all or a material portion of the Collateral within a commercially reasonable time, (v) the opposition of the use of cash collateral or sale of assets in an bankruptcy proceeding (vi) any action to foreclose on any Lien on all or any material portion of the Collateral, (vii) notification of account debtors to make payment to the Administrative Agent or its agents, (viii) any action to take possession of all or any material portion of the Collateral (ix) commencement of any legal proceedings or actions against or with respect to all or any material portion of the Collateral) (x) Any other actions specifically referenced in the Credit Agreement 10
RIGHT TO EXERCISE REMEDIES PRIOR TO THE COMMENCEMENT OF A BANKRUPTCY PROCEEDING Who can exercise remedies absent commencement of bankruptcy proceeding? Credit Agreement: – Administrative Agent shall, at the request of, or may, with the consent of the Required Lenders: • Terminate commitments • Accelerate • Exercise any other rights available under loan documents – Immediate commitment termination and acceleration upon specified Events of Default (bankruptcy) 11
RIGHT TO EXERCISE REMEDIES PRIOR TO THE COMMENCEMENT OF A BANKRUPTCY PROCEEDING AAL Modifications: FO Direction to Exercise of Remedies – Required FO Lenders provide written demand to Administrative Agent following Event of Default – Following negotiated standstill period (typical FO standstill is 30 days) Administrative Agent shall (and is deemed to be directed in writing by ALL LENDERS) terminate Commitments, accelerate obligations and commence exercise of remedies – so long as no LO Committed Buy-Out Notice or Offer Notice has been provided and is not waived, rescinded or lapsed – No restriction on FO to retain bankers or appraisers regarding valuation so long as Administrative Agent has not done so 12
RIGHT TO EXERCISE REMEDIES PRIOR TO THE COMMENCEMENT OF A BANKRUPTCY PROCEEDING AAL Modifications: LO Direction to Exercise of Remedies – Required LO Lenders provide written demand to Administrative Agent following Event of Default – Following negotiated standstill period (typical LO standstill is 90 days) Administrative Agent shall (and is deemed to be directed in writing by ALL LENDERS) terminate Commitments, accelerate obligations and commence exercise of remedies – so long as Required First Out Lenders has not provided demand for Exercise of Remedies or Administrative Agent is not diligently pursuing Exercise of Remedies directed by FO Lenders – No restriction on LO to retain bankers or appraisers regarding valuation so long as Administrative Agent has not done so 13
RIGHT TO EXERCISE REMEDIES PRIOR TO THE COMMENCEMENT OF A BANKRUPTCY PROCEEDING AAL Modifications: – Administrative Agent will not commence Exercise of Remedies except upon direction by Required FO Lenders or Required LO Lenders [ or Required Lenders ] – Triggered upon Exercise of Remedies • Payment waterfall • Buy-Out Rights • Bankruptcy • Power to direct remedies • Voting rights 14
RIGHTS OF FIRST-OUT LENDERS TO STOP THE EXERCISE OF REMEDIES • Waive or forbear on underlying Events of Default (if able to do so – but Required Lenders typically requires Required LO Lenders) • Exercise Buy-Out Options • Commence Bankruptcy Proceeding • Negotiated Outcome • Who is Administrative Agent? They have good faith discretion to ensure it is permitted by applicable law or wouldn’t result in liability and can appoint FO Lender Rep or LO Lender Rep 15
RIGHTS OF LAST-OUT LENDERS TO STOP THE EXERCISE OF REMEDIES • Waive or forbear on underlying Events of Default (if able to do so – but Required Lenders typically requires Required FO Lenders) • Exercise Buy-Out Options • Commence Bankruptcy Proceeding • Negotiated Outcome • Who is Administrative Agent? They have good faith discretion to ensure it is permitted by applicable law or wouldn’t result in liability and can appoint FO Lender Rep or LO Lender Rep 16
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