The Year in LMEs: Uptiers Down, Drop-Downs Up, and Dec. 31 Serta Decision Throws a Monkey Wrench

Covenant Research: Julian Bulaon Legal Research: Kevin Eckhardt Credit Research: Jared Muroff, CFA Relevant Items LME Year in Review Slides LME Year in Review Spreadsheet LME Tracker   Key Takeaways   The record volume of LMEs in 2024 gave many creditors a harsh reminder of the limitations in their debt document covenants, particularly those that can be overridden by majority or supermajority consent. In response, cooperation agreements and next-generation LME blockers covered by the “sacred rights” (including “omni-blockers”) have emerged as potential solutions whose efficacy and uptake may be tested in 2025.   The bankruptcy decision in Incora/Wesco raised doubts about the ability of companies, sponsors and participating noteholders/lenders to quickly and easily cleanse disputed uptiers in bankruptcy, and then the Fifth Circuit’s Serta decision effectively killed the “uptier LME two-step” bankruptcy strategy for most loans.   Although uptier transactions appeared to become less aggressive throughout the first half of the year as the market awaited Judge Marvin Isgur’s decision in the Incora/Wesco litigation, since the early summer the tide has seemed to turn with multiple drop–down transactions and iHeartMedia’s recent coercive exchange, which will be done with the consent of only a minority of 2028 secured noteholders and spawned talk of[...]