AUSTRALIA Trends and Developments Contributed by: Alastair Gourlay, Lewis Grimm, Emily Tsoi and Thanasis Dogoritis, Jones Day
LMTs in Private Credit LMTs have not been as commonly observed in the private credit sector as compared to the syn - dicated market, mainly because private credit documentation is typically more creditor-friend - ly, and private credit transactions usually have smaller lender groups and are driven by relation - ship-based dynamics. In Australia and APAC in general, there are also currently far fewer exam - ples of borrowers utilising LMTs compared to the US and Europe. As the financial landscape continues to evolve, LMTs are emerging as a factor that will potentially impact risk and return dynamics in not only the syndicated market but also the private credit sector. Conclusion The Australian private credit market is experi - encing significant growth and transformation, driven by factors such as stricter banking regu - lations and evolving borrower needs in a com - paratively high interest-rate environment. This has led to the loan features such as Payment- in-Kind (PIK) interest and portability provisions becoming more prevalent, offering borrowers greater flexibility in liquidity management and facilitating smoother ownership transitions. The shift towards borrower-friendly terms reflects the competitive landscape and the willingness of private credit lenders to adapt to meet market demands. Overall, the Australian private credit market is poised for sustained growth, continu - ing to reshape the lending landscape by provid - ing innovative and adaptable financing solutions that cater to the changing needs of borrowers and investors alike.
a less common exception to the non-pro rata payments provision that permitted the borrower to “purchase” loans “at any time”, leading to the court upholding the uptier transaction. Ulti - mately, both decisions are rule-of-law affirming as they uphold general principles of contractual interpretation – the precise language will ulti - mately determine the legality of an LMT. “Double-Dip” Transactions In a double-dip transaction, a lender structures a single loan in a way that creates two distinct claims against a key obligor based on different grounds of liability (a guarantee and an inter- company loan claim), with the aim of improving the lender’s position to recover in an insolvency scenario as against other creditors. Although the lender’s recovery is still capped at the out - standing loan amount, having multiple claims is particularly beneficial for lenders in distressed scenarios where there is a risk of recovering less than the full amount. In general, for a company to undertake a double-dip transaction, the com - pany will require adequate secured debt capac - ity and flexibility to allocate the pari passu debt capacity effectively. The market generally considers double-dip transactions as being less aggressive than some other traditional LMTs, which can be used to supplement other LMT tools such as the “drop- down” and “uptier” transactions.
38
CHAMBERS.COM
Powered by FlippingBook