UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
nerships, which may fall under the UK consumer credit regime. Corporate lending is subject to UK AML requirements. The UK doesn’t differentiate between the regula - tory treatment of term and RCF loans and has no general restrictions on the sale, transfer or sub-participation of loans. 3.4 Use of Proceeds and Acquisition Financings There are no restrictions on using private credit for take-privates and acquisition financing and no restrictions on a borrower’s use of proceeds under English law. 3.5 Debt Buyback Debt buybacks by borrowers are permitted under English law and facility agreements will typically include provisions governing this. There are usually three options: • open order transactions: the borrower notifies the lenders of the total amount of the loans it intends to acquire and the price offered. If the offer is oversubscribed, offers from the lend - ers are accepted on a pro rata basis; • solicitation transactions: the borrower solic - its offers from lenders to purchase its debt, selecting the lowest offers first and, where offers are at the same price, purchasing the debt on a pro rata basis; and • bilateral transactions: this involves a direct negotiation between the borrower and a single lender. The parties are free to agree the terms. This option is often used when the buyer and seller have a pre-existing relation - ship or when confidentiality and discretion are important.
Private credit lenders will often require that the open order process is completed first before there is a solicitation or bilateral process. 3.6 Recent Legal and Commercial Developments Similar to the broadly syndicated market, private credit lenders are focused on limiting the “trap doors”/loopholes in the covenants that allow for sponsors/borrowers to undertake liability man - agement exercises (ie, uptiering transactions and dropdown/asset-stripping transactions). This has led to the development of a few “block - ers”, ie, contractual protections to prevent the borrower group/sponsor from undertaking these transactions. Key “blockers” that are now included in private credit transactions are as follows. • Prevent key assets being transferred to unre - stricted subsidiaries, which could use them as collateral for new, senior debt. • Ensure key assets remain with guarantors, limiting transfers to non-guarantor restricted subsidiaries by imposing caps. • Cap the aggregate value of assets moved to unrestricted subsidiaries. • Stop majority lenders from subordinating existing lenders’ security/introducing priming debt without unanimous consent. • Prevent automatic release of a subsidiary guarantor’s guarantee if it becomes non- wholly owned through permitted transactions. 3.7 Junior and Hybrid Capital In the current high interest rate environment, many sound businesses face increased debt service and reduced senior debt capacity. Junior and hybrid capital solutions help alleviate these pressures.
297 CHAMBERS.COM
Powered by FlippingBook