Winston & Strawn Loan and CLO Market Update

Winston & Strawn Loan and
CLO Market Update
June 10, 2015
© 2015 Winston & Strawn LLP
Today’s Speakers
Timothy J. Dable
Corporate Partner
Chicago
+1 (312) 558-6369
tdable@winston.com
Jai S. Khanna
Corporate Partner
Chicago
+1 (312) 558-6357
jkhanna@winston.com
Felton E. Parrish
Corporate Partner
Charlotte
+1 (704) 350-7820
fparrish@winston.com
Kevin M. Ryan
Corporate Partner
Chicago
+1 (312) 558-7482
kryan@winston.com
© 2015 Winston & Strawn LLP
Michael T. Mullins
Corporate Partner
Chicago
+1 (312) 558-7568
mmullins@winston.com
James A. Snyder
Corporate Partner
Chicago
+1 (312) 558-5271
jsnyder@winston.com
2
Agenda
State of the CLO Market
Cash Flow Loan Update
Asset Based Loan Update
LSTA Update
Bankruptcy Update
© 2015 Winston & Strawn LLP
3
State of the CLO Market
© 2015 Winston & Strawn LLP
CLO Market Update
• Recent History
• Current Market Trends and Outlook
• Obstacles: Past and Present
• Volcker Rule
• Risk Retention
• Loan Supply / Pricing Arbitrage
© 2015 Winston & Strawn LLP
5
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
© 2015 Winston & Strawn LLP
6
Loan Market Update
© 2015 Winston & Strawn LLP
Cash Flow
© 2015 Winston & Strawn LLP
8
Overview
• Thin deal flow
• Reasons?
• Impact
• Leveraged lending guidance
• Large cap space
• Mid-market space
© 2015 Winston & Strawn LLP
9
Impact on Documentation
• Increased borrower sway over process generally
• Further loosening of deal terms
• Continued evolution of "sponsor technology"
© 2015 Winston & Strawn LLP
10
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
© 2015 Winston & Strawn LLP
11
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
© 2015 Winston & Strawn LLP
12
Asset Based
© 2015 Winston & Strawn LLP
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
© 2015 Winston & Strawn LLP
14
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
© 2015 Winston & Strawn LLP
15
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
© 2015 Winston & Strawn LLP
16
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
© 2015 Winston & Strawn LLP
18
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.
© 2015 Winston & Strawn LLP
20
Questions?
© 2015 Winston & Strawn LLP
21
Speakers
Timothy J. Dable
Corporate Partner
Chicago
+1 (312) 558-6369
tdable@winston.com
Jai S. Khanna
Corporate Partner
Chicago
+1 (312) 558-6357
jkhanna@winston.com
Michael T. Mullins
Corporate Partner
Chicago
+1 (312) 558-7568
mmullins@winston.com
Felton E. Parrish
Corporate Partner
Charlotte
+1 (704) 350-7820
fparrish@winston.com
Kevin M. Ryan
Corporate Partner
Chicago
+1 (312) 558-7482
kryan@winston.com
James A. Snyder
Corporate Partner
Chicago
+1 (312) 558-5271
jsnyder@winston.com
© 2015 Winston & Strawn LLP
22
Thank You
© 2015 Winston & Strawn LLP