October 10, 2018 - The State of Delaware recently amended the Delaware Limited Liability Company Act to allow any Delaware limited liability company (LLC) to divide into two or more LLCs pursuant to a plan of division. Working with the LSTA’s Primary Market Committee, the LSTA has published “LSTA Market Advisory – Divisions by Delaware Limited Liability Companies” which explains the amendment, how it could impact credit agreements, and sets out suggested credit agreement language that addresses this type of division. The Advisory explains that in connection with any LLC division, the original Delaware LLC can, under the plan of division, allocate its assets, rights, debts, and liabilities among the newly created limited liability companies and then terminate or continue its own existence. Following any such division, each resulting Delaware LLC would own the assets and be obligated on the liabilities of the original Delaware LLC only to the extent they are allocated to it by the plan of division. Credit agreements typically restrict mergers, asset sales and similar transactions but most do not currently contemplate divisions. The LSTA plans to include the Advisory’s recommended language when it next turns its 2017 Credit Agreement. For those interested in further information on the new Delaware law, the LSTA hosted a webinar on the topic which was presented by Emin Guseynov of Orrick (our external counsel on this issue) and Sabrina Rusnak-Carlson of THL Credit in September.
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