LMA Webinar Introduction to the LMA REF Intercreditor Agreement. Mark O Neill, Steve Smith, Partners Linklaters LLP

Transcription

1 LMA Webinar Introduction to the LMA REF Intercreditor Agreement Mark O Neill, Steve Smith, Partners Linklaters LLP

2 Introduction LMA Intercreditor Agreement Basis of preparation of LMA REF ICA Terminology and motivational factors Structure and key terms of REF ICA Treatment of Hedging Liabilities 2

3 Terminology Senior or A debt Mezzanine or junior or B debt A/B structures 3

4 Motivating Factors Senior Senior in capital structure Do not want to be constrained by mezzanine Concerned about mezzanine delays to enforcement and realisation of assets Mezzanine Greater risk Concern senior will act in senior interest only Concern senior will act too quickly Potential to frustrate senior 4

5 Basis of Preparation of LMA ICA Based upon the LMA Lev Fin ICA Not as lengthy Key differences to Lev Fin ICA REF specific options Lev Fin excluded provisions 5

6 Structure and Key Provisions LMA ICA Structure (including guarantees and security) Ranking Amendments and waivers Mezzanine cure rights Acquisitions Option to purchase Enforcement rights Disposals Changes to Creditors 6

7 Typical Deal Structure Structural Subordination Mezzanine Security Agent Mezzanine Only Security over all assets INVESTOR MEZZANINE SHAREHOLDER MEZZANINE BORROWER Mezzanine Subordinated Debt Mezzanine Subordinated Debt Mezzanine Facility Agreement Mezzanine Lenders Common Security over [all assets/shares and subordinated debt] SENIOR SHAREHOLDER Mezzanine Subordinated Debt Subordinated Debt Common Security over all assets COMPANY Senior Lenders Subordinated Debt Common Security Agent Common Security over all assets SENIOR BORROWERS/ Obligors Hedge Counterparties 7

8 Structure Structural vs contractual subordination what do we mean? Advantages of structural subordination Disadvantage of contractual subordination So why might you use contractual subordination? 8

9 Ranking Senior first and then mezzanine What about interest rate hedging senior and mezzanine? What about additional senior loans? What about cure loans? 9

10 Amendments and Waivers What is the LMA starting position? Common approach to senior and mezzanine positions (i.e. both sets of creditors have similar rights and restrictions as regards amendments and waivers) Concept of Distressed Property Management Initiative 10

11 Mezzanine Cure Rights What can be cured? How can it be cured? What restrictions apply? Is this still contentious in the market? 11

12 Acquisitions What do we mean by an Acquisition? Why would a Senior Creditor be concerned? What about outstanding Senior Defaults? What about post Acquisition Mezzanine Creditor rights? 12

13 Option to Purchase What do we mean by an option to purchase? Where may the option be exercised? What Senior Lender Liabilities are included? What about Senior Hedging? Is this still contentious in the market? 13

14 Enforcement Rights When are Senior Creditors restricted from exercising enforcement rights? When may Mezzanine Creditors require security to be enforced: Mezzanine acceleration with Senior acceleration Mezzanine Event of Default, Mezzanine Standstill Period and Senior Principal Liabilities to Value Acquisition 14

15 Disposals Distressed vs Non-Distressed Disposals Release of liabilities and security Consideration on disposals Distressed Property Management Initiatives 15

16 Changes to Creditors Changes to Senior Lenders Changes to Mezzanine Lenders Consent of Senior Creditors? Impact on Acquisitions Changes to Hedge Counterparties 16

17 Treatment of Hedging Liabilities Why is there interest rate hedging? What are the typical forms of interest rate hedging How is hedging dealt with in the LMA REF Intercreditor agreement: voting rights pari passu with senior lenders amendments and waivers enforcement rights transfer of hedging to mezzanine creditors 17