Americas Covenants Midyear Wrap: Non-Pro-Rata Deals Persist but Meet Growing Resistance Post-Serta; Tariff Concerns Fail to Materialize in Deal Documentation; Covenant Capacities, Aggressive Terms Continue to Converge Across Products

Legal Analysts: Julian Bulaon; Stan Kostov; Mitch Oates
Data Visualizations: Angelo Filarmonico

Key Takeaways

• Liability management: The 5th Circuit’s Serta ruling slowed but did not stop non-pro-rata exchanges in the first half of 2025: Non-pro-rata deals by Better Health, Oregon Tool, Tropicana, Quest Software and Wellness Pet each closed without using the now defunct “open market purchase” exception. Creditor fatigue with loophole tactics has driven increased interest in “omni-blockers,” and settlements won by minority creditors excluded from non-pro-rata deals by Better Health, AMC and Del Monte signal growing resistance to aggressive LMEs.
   
• Tariffs: Tariff uncertainty dampened deal volume in the first half, with primary high yield and loan issuances slowing to a crawl in the weeks immediately following “Liberation Day.” Despite global concerns, tariff-related EBITDA addbacks and other adjustments have failed to gain traction across the credit spectrum.
   
• Covenant capacities: High-yield bonds continue to offer greater day-one secured-debt capacity than broadly syndicated loans, though capacity for dividends and value leakage to unrestricted subsidiaries is broadly aligned across instruments.
   
• Aggressive terms: High-yield bonds in the second quarter of 2025 recorded an uptick in a provision that expressly allows unrestricted subsidiaries to use transferred value without attribution to the restricted group. The share of broadly syndicated loans featuring a high-yield-style restricted payments covenant also rose in the quarter, signaling ongoing convergence across asset classes.

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