This week we chat with Daniel Winick, a partner in the banking and finance group of Clifford Chance US LLP, and Andrew Young, a senior associate in the same group.  Their practice includes representing sponsors, corporates, lenders and participants in multijurisdictional leveraged and other finance transactions. Clifford Chance is a multinational law firm that is one of the ten largest globally.

The Lead Left: Daniel and Andrew, thanks for making time for us today. Give us a perspective on the big picture items that are driving credit agreements in today’s leveraged loan market? 

Daniel Winick: Flexibility in terms of future financing optionality and covenant exceptions continue to be significant drivers of credit agreement terms today. Lenders (particularly in the mid-market space) have been laser focused on protecting and preserving the “ring-fence” and preventing value leakage and collateral erosion. Recent litigations, such as in J. Crew, have reminded lenders of the risks of covenant holes.

TLL: Do you see a difference between the terms that banks are sticking with compared with non-banks?

DW: Yes and no. Of course leveraged lending guidance remains a key governor, but otherwise bargaining leverage and credit needs are the biggest factors. At the same time, banks often have limited (to no) flexibility in modifying certain terms, for example relating to transferability and legal and regulatory compliance.

TLL: One of the frustrations for lenders is the “big boy” terms that have made their way down market, most notably cov-lite. What’s your view on this trend from the lender’s perspective?