2024 Year in Review
Ian Feng of Covenant Review weighs on key developments during 2024 for the Creditor Rights Coalition. Read on for what he has to say:
For the leveraged loan market, 2024 was a year of incremental changes when it came to liability management exercises (LMEs), not bold evolution. Distressed borrowers and their advisors continued to follow the tried-and-true trichotomy of dropdown / uptier / double dip (including “pari-plus”), with the occasional combination of two or more of these approaches. However, 2024 was not without excitement as some salient trends illustrate.
“Consensual” uptiers. 2024 was the year that uptiers emerged from secretive backrooms into the light of day with affected lenders often given the bona fide opportunity to participate in new priming paper. Unfortunately, “bona fide” does not always mean “fair,” with several transactions illustrating significant deltas between the “haves” (those in the steering group) and “have-nots” (everyone else). Indeed, minority lenders could be offered less than ideal economics, including PIK terms and/or significant haircuts. The rise of such voluntary exchanges can be tied to a number of factors, including (1) the growing prevalence of “Serta blockers” (which sometimes include a ROFR exception) and (2) an attempt by borrowers to litigation-proof their LMEs (via broad waiver language).
Co-op agreements. 2024 also saw an increasingly proactive approach taken by lenders to get ahead of potential LMEs, with co-op agreements being reported in a significant number of distressed names, including Altice, Astound Broadband, Multi-Plan, among others. These “loyalty pacts” (as they are sometimes known) in theory inhibit lender-on-lender violence by establishing a unified bloc against borrower-led LMEs. On the other hand, co-ops can also exacerbate majority-minority splits by freezing out those lenders not party to such agreements. Potential side effects also abound, as handcuffing borrowers in this manner may result in more scorched earth restructuring proposals.
An unwelcome debut. In June 2024, Pluralsight reportedly transferred material IP to a restricted non-guarantor subsidiary. Vista (Pluralsight’s sponsor) then extended a loan backed by the IP to finance the interest payment at the parent level. While the nature of the transaction was distressingly familiar, the context was not, with many observers calling Pluralsight’s maneuvering as the first publicized instance of an LME in the private credit (PC) market. Is Pluralsight a sign of things to come for the PC market or an outlier? The future is hazy but note that “lender-on-lender violence” is arguably less likely to occur in PC deals given that lender groups tend to be more unified and covenant terms stronger than in their BSL counterparts.
Qualified court wins. On the judicial front, key decisions came down in 2024 addressing LMEs in RobertShaw and Incora (the latter an oral decision). Both cases were broadly viewed as creditor friendly (in contrast to earlier decisions like Serta). In Incora, Judge Isgur voided a 2022 LME, admittedly on the esoteric issue of “vote rigging.” In RobertShaw, Judge Lopez found the borrower to have violated its superpriority credit agreement, though this time, the holding turned on a technical argument as to which entities constituted “Required Lenders.” Thus, neither case broached LME legality as a general matter, and both cases’ somewhat narrow take on post-LME remedies may have a chilling impact on future litigation. With several LME-adjacent cases still pending (including AMC and a written opinion in Incora), it is far from clear whether 2025 will carry on creditors’ recent judicial “win” streak.