Companies can purchase term loans in the open market if the credit agreement allows it, which can harm first lean lenders as they become subordinated to super priority lenders. First lean lenders may have to wait behind super priority lenders in case of liquidation. However, for second lean lenders, being subordinated to first lean debt is acceptable as long as the total debt remains the same or decreases. In a transaction like the one mentioned for Serda, minority lenders sued as they did not agree with the proposal from Apollo, opting to raise liquidity through an unrestricted subsidiary transfer instead.
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.
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