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© 2015 Winston & Strawn LLP
Winston & Strawn Loan and CLO Market Update
June 10, 2015
© 2015 Winston & Strawn LLP
Today’s Speakers
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Jai S. Khanna Corporate Partner Chicago +1 (312) 558-6357 [email protected]
Kevin M. Ryan Corporate Partner Chicago +1 (312) 558-7482 [email protected]
Felton E. Parrish Corporate Partner Charlotte +1 (704) 350-7820 [email protected]
Timothy J. Dable Corporate Partner Chicago +1 (312) 558-6369 [email protected]
James A. Snyder Corporate Partner Chicago +1 (312) 558-5271 [email protected]
Michael T. Mullins Corporate Partner Chicago +1 (312) 558-7568 [email protected]
© 2015 Winston & Strawn LLP
Agenda
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State of the CLO Market
Cash Flow Loan Update
Asset Based Loan Update
LSTA Update
Bankruptcy Update
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State of the CLO Market
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CLO Market Update
• Recent History
• Current Market Trends and Outlook
• Obstacles: Past and Present • Volcker Rule
• Risk Retention
• Loan Supply / Pricing Arbitrage
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CLO Market Update
• European Risk Retention • What are managers doing now? • “Hold periods” for retention holders/originator
• US Risk Retention
• What are managers doing now? • Refinancings • Majority Owned Affiliate • Leverage • Voting rights • Making deals work for both US and EU risk retention
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Loan Market Update
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Cash Flow
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Overview
• Thin deal flow • Reasons?
• Impact
• Leveraged lending guidance • Large cap space
• Mid-market space
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Impact on Documentation
• Increased borrower sway over process generally
• Further loosening of deal terms
• Continued evolution of "sponsor technology"
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Players in the Market
• Existing names expanding, including into new markets and considering new industries
• Lots of new names and platforms in the MM space • Questions surrounding pending transactions
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Alternative Structures and Approaches
• Interest in seeking to gain any toehold to increase market share • First Out / Last Out and Unitranche
• First Lien / Second Lien
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Asset Based
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General Overview
• Similar issues surrounding deal flow as in Cash Flow space
• More frequent use of precedent documents or provisions
• Sponsor desire to match existing terms of portfolio
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ABL Deal Specific Terms
• Reserves – creeping past general permitted discretion
• Financial Covenant/Equity Cure – increased frequency of cure rights
• Cash Dominion Spring – extension of trigger event
• Payment Conditions – creation of sub categories and combinations within standard requirements
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Alternate Approaches to Enhanced Availability
• Eligible equipment or fixed asset components
• Stretch portion on eligible accounts and/or eligible inventory
• Eligible accounts of foreign subsidiaries
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© 2015 Winston & Strawn LLP
LSTA Update
© 2015 Winston & Strawn LLP
LSTA Update
• Model Credit Agreement Provisions
• Disqualified Lender Lists • LSTA approach generally followed in marketplace
• But with case-by-case negotiated deviations
• DQ list only provided to Agent not lenders
• Assignments to DQed lenders null and void
• Expansion of borrower ability to update list
• LSTA Market Advisory– deviations upset delicate balance
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© 2015 Winston & Strawn LLP
Bankruptcy Update
© 2015 Winston & Strawn LLP
Bankruptcy Update
• In re MPM Silicones, LLC – the worst of all worlds: • Claim for make-whole payment denied; • Plan confirmed that provided for below market interest rate to
secured lenders; and, • Claims against second lienholders for breach of intercreditor
agreement dismissed.
• Unitranche Issues: • In RadioShack bankruptcy, court interpreted and enforced
Agreement Among Lenders (AAL). • There was no express ruling as to enforceability of AAL in
bankruptcy, but decision does provide some comfort.
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© 2015 Winston & Strawn LLP
Questions?
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© 2015 Winston & Strawn LLP
Speakers
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Jai S. Khanna Corporate Partner Chicago +1 (312) 558-6357 [email protected]
Kevin M. Ryan Corporate Partner Chicago +1 (312) 558-7482 [email protected]
Felton E. Parrish Corporate Partner Charlotte +1 (704) 350-7820 [email protected]
Timothy J. Dable Corporate Partner Chicago +1 (312) 558-6369 [email protected]
James A. Snyder Corporate Partner Chicago +1 (312) 558-5271 [email protected]
Michael T. Mullins Corporate Partner Chicago +1 (312) 558-7568 [email protected]
© 2015 Winston & Strawn LLP
Thank You