Transfer provisions: Yank the banks

Author: | Published: 1 Sep 2006

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...