October 18, 2021 - by Bridget Marsh. On October 13th, the LSTA hosted “Lenders Beware: Erosion of Creditor Remedies in Loan Documentation/ Lessons from Trimark” presented by Jason Kyrwood, Brian Resnick, and Kenneth Steinberg, partners of Davis Polk & Wardwell LLP, and Linda Filardi, Senior Director and Associate General Counsel, Capital One Bank.
It has been a turbulent time for loan markets participants, from the increase in debt or default activism observed a couple of years ago, to the so-called “creditor on creditor violence” that has taken place during the pandemic. These disputes highlight certain contractual provisions in loan documentation, some of which have evolved rapidly in response to cases of the past year.
The facts of the Trimark case include an uptiering transaction whereby the majority of the first lien lenders funded a first out super-senior new money facility and in return the company exchanged new second out super-senior loans for the participating lenders’ existing loans leaving the other nonparticipating lenders in a third priority position on the collateral on which they formerly had a pari passu first lien position (the exchange of the existing first lien loans for the second priority super-senior loans was done with open market purchase transactions).
The alleged estimated recovery of the first out super-senior loans was 95 cents compared with that of the first lien loans held by the minority lenders which was only zero. Was this a “cannibalistic assault” (to use the words of the plaintiffs) by one group of lenders against another group of lenders? The Panelists discuss the Trimark decision and examine several emerging provisions in credit documentation which seem to limit lenders’ remedies, including time limitations on exercising remedies, event of default cure provisions, and tolling of event of default grace periods. Click here for the replay and slides.