Concentration caps have hit the BSL market as the newest sponsor tool
- Jane Komsky
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The newest development in the swinging pendulum of borrowers and creditors trying to seize power through credit agreements has arrived.
Concentration caps — which prevent any lender from owning more than a certain percentage of a borrower’s outstanding loans — are being included in credit agreements, according to sources and language reviewed by 9fin from a deal that cleared the broadly syndicated loan market. Typically, such ownership threshold is at 20%.
9fin previously reported on voting caps which place a ceiling on the share of a loan a lender has the rights to vote on, regardless if its financial position exceeds the cap. This language, however, takes the premise a step further by preventing any lender from owning more than a percentage of loan in the first place, thus ensuring there are other lenders in the capital structure for the company to potentially work with.