In the current market, sponsors are very aware of the pros
and cons of free transferability in acquisition finance
packages supporting leveraged buyouts.
On the one hand, it is in the sponsors' interests if primary
syndication is over-subscribed because, in the current market
at least, reverse flex provisions will generally swing into
operation to reduce the margins. According to rating agency
Standard & Poor's, of the 42 downward flexes on senior term
loan tranches B and C so far this year, 33% took the spreads to
below the 250/300 basis point (bp) barrier and 55% took the
spreads to the 250/300 bp level. Standard & Poor's report
that on over-subscribed deals reverse flex on the senior debt
tranches by an eighth or a quarter of a point has resulted in a
"new standard" flexed margin percentage of 200/250/300 bps (on
Term Loans A, B and C respectively) as demonstrated at...