Liability Management Exercises (“LME”) continue to get significant press and seem to be an agenda item in most conversations with allocators. Most off-track portfolio amendments would qualify as an LME, but the most attention-grabbing headlines are reserved for instances which include the presence of “lender on lender” violence, naturally at the detriment of a lender minority. The most common structure remains an uptier transaction.
These transactions involving creditor infighting typically occur in a distressed scenario, where loans are viewed as undercollateralized, and where the borrower is looking for liquidity and/or time. A transactional Sponsor along with a participating lender majority agree to amend the credit agreement in a beneficial manner for the borrower. Those participating lenders do so while excluding entirely, or pressuring, a “jailed” minority of lenders into a prisoner’s dilemma.
How do you attempt to avoid the prisoner’s dilemma? NXT Capital’s view – stay out of jail.