Loans do not have significant repayment penalties, which reduces the need for portability, and their recent arrival is interpreted as sponsors taking advantage of tense market conditions. Gary Gill, of Sangra Moller in Vancouver, says portability has always been something “jealously guarded” by lenders in the past, but that changes because of ultra-low interest rates. “The power of lenders has weakened, so they are more likely to negotiate portability,” he says. In some cases, the debt requirement or obligation is related to reputation protection for certain debt tranches, which increases the cost of refinancing existing premium facilities. The total amount of these costs – insurance costs for new replacement organizations and reputational protection payments – is actually borne by the seller, as a potential buyer incorporates the costs into the purchase price. Debt portability provisions refrain from changing control rules when certain criteria (including leverage ratios and rating conditions) are met. Lenders who agree to adopt such a language of portability may in theory take over the borrower`s loans from a third party, but they can also put in place certain guarantees. Pandemic urged lenders to include portability clauses in private equity agreements “This trend could be encouraging for some borrowers who wish to discuss the possibility of including portability clauses in credit agreements with their creditors,” Norton Rose Fulbright LLP lawyer Olga Lenova wrote recently in a blog post. “The inclusion of such clauses will depend on the circumstances of the borrower and the credit agreement.” The Covid 19 pandemic has led to changes in the way partnership and development agreements are developed, and a notable trend is the growing willingness of lenders to agree on the inclusion of portability clauses in credit documents to facilitate private equity transactions.
After they did not sell the transaction, the shareholders launched a dividend recapitalization to pay themselves 100 million euros and provided a portability clause to make the company more attractive when it is put back on sale. However, investors are not satisfied with all the desires for portability. When debt portability provisions are negotiated, the entity must anticipate the functioning of the terms and conditions at the same time as the planned sale process, in order to ensure a smooth intersection with the terms of the acquisition contracts. However, debt portability cannot be the same effective in all cases. Sometimes the potential buyer wants more flexibility (for example. B more debt capacity) or other conditions (p.B. adjusted baskets based on the sponsor`s precedent) than what the company`s debt documents offer. In other cases, the buyer may want to get additional debts to finance a higher purchase price, which means that some marketing efforts will still be needed and reduces the speed advantage to closing portability. It should also be noted that some bond investors disapprove of the portability provisions, which means that the inclusion of these provisions in syndication financing could affect price fixing or enforcement.