Octus on Credit: LME litigation heats up as year-end approaches

Julian Bulaon, Senior Covenant Analyst

Liability management transactions surged in 2024 thanks to a well-known combination of factors: loose documentation, a tough macroeconomic environment, and opportunistic creditors willing to employ familiar strategies that have been blessed – or at least not condemned – by the courts.

While credit markets have largely accepted liability management as a now regular part of the business, not all investors are embracing this new era without resistance. In fact, the fourth quarter looks to be an active one for litigation initiated by aggrieved lenders over LME practices. Although LME disputes are frequently settled, fully litigated cases – such as the Wesco / Incora uptier dispute – can yield outcomes that shape the landscape of the practice.

In September, holders of AMC‘s first-lien notes due 2029, which were excluded from the company’s July uptier-dropdown exchange, sued the company and certain participating creditors, alleging that the LME violated pre-existing intercreditor arrangements.

In October, Del Monte‘s August dropdown LME was challenged in court by Black Diamond, the collateral agent for the remaining lenders under the pre-existing credit facility, claiming that the transaction violated the pre-LME credit agreement.

This month, our legal and financial analysts collaborated to explore refinancing options – including LME scenarios – for several high-profile situations, including E.W. Scripps and CommScope. Whether these companies choose to pursue straightforward refinancing or opt for a controversial LME that could invite litigation remains to be seen.

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