Lycra’s Quasi Drop-Down Transaction: New Hybrid Structure Allows IP Assets to Move to Unrestricted Subsidiary While New Debt Remains in Restricted Group

Relevant Document: New 2025 Notes Indenture   Key Takeaways   Lycra recently refinanced its senior secured notes due 2023 with new senior secured notes due 2025.   The new notes will initially rank pari passu with Lycra’s existing senior secured notes due 2025, but will benefit from €75 million of additional security in the form of intellectual property assets to be moved into unrestricted subsidiaries in a “dropdown” transaction.   In a typical dropdown transaction, both the priming collateral and the new debt are incurred at the structurally senior level of an unrestricted subsidiary below the restricted group bound by the covenants of the existing debt.   Here, Lycra has adopted an interesting hybrid structure where the debt is incurred within the restricted group pari passu with the existing notes and only the collateral is moved to an unrestricted subsidiary.    Background On May 1, Lycra refinanced its outstanding €250 million 5.375% senior secured notes due 2023 (the “2023 Notes”), which were maturing on that day, through the issuance of €300 million of 16% senior secured PIK notes due 2025 (the “New 2025 Notes”). We previously reported on the issuance of the New 2025 Notes HERE and HERE. The New[...]