Companies may shift collateral to unrestricted subsidiaries to avoid negative covenants and freely utilize the collateral. However, this results in reduced collateral available to lenders. Lenders can prevent such transactions by requiring all lender consent for amendments subordinating liens or by setting guidelines for open market purchases. By implementing these measures, lenders can safeguard their interests and prevent future transactions that may impact their claims on collateral.
In this week's episode, Peter Washkowitz discusses how more and more companies are replicating Serta Simmons' super-priority uptier exchange and how lenders can fight back on these transactions in new bank debt facilities.
If you are not a Reorg subscriber, request access here: go.reorg-research.com/Podcast-Trial.