Article/Intelligence
Debt Buyback Provisions in European Leveraged Loans Revisited
Against the backdrop of a rising rate environment, many European leveraged loans are now priced at a discount. During the global financial crisis of 2008/9 when loans were also trading at sub-par prices, a number of healthy borrowers took advantage by buying back their own loans below par, allowing them to deleverage cheaply and build equity value at a discount. However, loan buybacks then were not without controversy. Leveraged loan documents at the time did not cater expressly for debt buybacks. Not all lenders were offered the opportunity to participate in the buyback process, and lenders who were left out contend that they were not treated fairly, in violation of the general principle of equal treatment. That controversy led to the introduction of the debt buyback provision in European leveraged loan documents which, since then, has been present in the vast majority of European leveraged loan documents. During the height of the COVID pandemic, when loans were also trading at discount, we analyzed the debt buyback provision in a two part series (see here and here). In light of European leveraged loans once again being traded at sub-par levels, we revisit the debt buyback provision in this article. One development[...]