Lending Law Report : Corporate Finance Lawyer & Attorney : Reed Smith Law Firm : Lending Transactions, Secured Investments

Several of us spent some time at the annual ACG business conference in Los Angeles this week.   Having attended this conference for the past few years, it was nice to see a bit more optimism in the crowd this time than, say, last year and the year before.  

I was particularly interested to hear a panel of lenders talk about what they think the loan market will be like in the coming months.  Everybody agrees that we're not back to where things were in 2005-2007 (and in some ways, that could be a good thing).  Still, things definitely seem to be loosening up a bit, and there seems to be - for lack of a better term - cautious optimism about the future of the lending world.  We've been seeing it in our practice here, and so have the lenders on the panel. 

One of the panelists mentioned that more lenders are getting back in the game, particularly CLO's.  Another described the general trend of leverage levels moving slowly up, and pricing moving down.  There's also some loosening of terms and structure -- some of us are even seeing dividend recap deals again.  As usual, the middle market remains more active than the upper end.

Predicting the future is really tough, though.  Some economists think we're headed for a double-dip.  Others think we can ride it out.  Lenders see some opportunities in refinancing credit facilities that will mature in 2011 and 2012, and in expected (hoped for, anyway) expansion of the acquisition market.

What do you think the next few months will look like?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

What issues have you faced most often when trying to negotiate covenants in a loan agreement?  Do you find that many of your negotiations are about the tension between maintaining appropriate limits vs. providing sufficient flexibility for the business?  Do specific issues arise in setting baskets for other debt, liens and investments?    Permitting acquisitions?   Dealing with subsidiaries?   Agreeing on appropriate levels for financial covenants? 

For the borrower, it's often the case that a large part of the process involves thinking through what the company needs in order to maintain and grow its business.  This includes figuring out what the company will need during the entire life of the loan - looking ahead up to three or even five years and taking an educated guess. 

On the other side of the table, the lenders need to know that things at the company won't change in a way that adds an unacceptable level of risk - for example, that the company will maintain reasonable financial performance and won't get rid of revenue producing assets (well, at least without paying down the loan). 

If, for example, the borrower wants the ability to make significant acquisitions during the term of the loan, but the lenders think that for this company the acquisitions would create an unacceptable level of risk, these two differing viewpoints can lead to lengthy discussions.  If all goes well (as is often the case), these negotiations result in creative solutions being crafted that meet the needs of all the parties.  At the end of the day, there may be a few things can't be determined in advance that are set aside for later, with the lenders saying that the borrower should request consent if the anticipated event ever does occur.  But usually the parties try to keep as many items off this list as possible.

On October 6, I'll be speaking on the topic of negotiating covenants in this program.  Agreeing on the covenants is one of the most important - but also one of the most difficult - parts of a loan transaction.   If you let me know what issues you've faced, I'll try to cover those in the October 6 program and in future blog posts.  As always, you can post responses in the comments below or email me at salker@reedsmith.com.  Thanks for your input!

• Email This
• Print
• Comments
• Trackbacks
• Share Link