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Reorg Radio
Covenants: Preserving Guarantees of Non-Wholly Owned Subsidiaries (Oct. 13, 2020)
Oct 13, 2020
07:44
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The podcast discusses provisions in credit agreements regarding non-wholly owned subsidiaries' guarantees. It explores PetSmart's transfer of Chewy equity and its impact on debt documents. It also highlights recent amendments that allow the release of a guarantor becoming a non-wholly owned subsidiary, emphasizing potential collateral loss.
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Quick takeaways
- The release of a guarantor from its guarantee under a credit agreement also releases collateral attributable to that subsidiary from the collateral pool, causing concerns among lenders.
- Debt documents now include anti PetSmart provisions to address the risk of collateral loss, stating that guarantees will only be released under certain conditions.
Deep dives
Risk of Collateral Loss through Release of Guarantees
The podcast discusses the risk of collateral loss when guarantees are released. It highlights how the release of a guarantor from its guarantee under a credit agreement or indenture also results in the release of collateral attributable to that subsidiary from the collateral pool. An example mentioned is PetSmart's transfer of chewy equity to the sponsors in 2018, which made chewy a non wholly owned entity. As a result, chewy's guarantee and liens on its assets were released, causing concerns among lenders and the broader market.
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