Understanding Unrestricted Subsidiaries - a Primer
- Christine Tognoli
Over the last few years, deals like J.Crew, iHeart Communication and Neiman Marcus have brought to the fore the potential use (or abuse) of Unrestricted Subsidiary designation mechanics to undertake transactions that might otherwise be prohibited (or more limited) under an instrument’s covenant terms (be it a leveraged loan or high yield bond).
While the Restricted and Unrestricted Group distinction has traditionally been a feature of the HY bond and US leveraged loan markets, it is now the predominant structure for purposes of European leveraged loans as well.
In this article, we breakdown what the Restricted Group is, what it means to become “Unrestricted”, and how these two groups interact.