Leveraged finance

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Ruling confirms majority noteholder should not be disenfranchised from voting

By Simon J. Baskerville, Sophie J. Lamb QC, Bradley J. Weyland, and Eleanor M. Scogings

The English High Court held that it had jurisdiction in a cross-border dispute involving the Norske Skog group (Norske Skog), and confirmed that a majority noteholder did not “control” the debtor companies and was therefore not excluded from being part of the “instructing group”. The case also confirms the ability of the English courts to rule in relation to issues of both New York law and English law. These rulings reassured observers active in European leveraged finance transactions, who have long believed that courts should interpret and approach this suite of contracts in exactly this way.

Case Background

In 2015, Norske Skog, a large Norwegian group of manufacturing companies engaged in the paper industry, issued senior secured notes (the Notes) pursuant to a New York law governed indenture. As is typical with leveraged finance structures, the company also entered into an intercreditor agreement (ICA) governed by English law. The ICA allows the flexibility for multiple secured creditor classes under various instruments to benefit from the security. Further, the ICA governs the relative priority of such creditors and other liabilities, as well as the ability to instruct the security agent in case of a default scenario.

By Alan Avery, Christopher Kandel, Markus Krüger and Axel Schiemann

On 23 November 2016, the European Central Bank (ECB) published its draft guidance to banks on leveraged lending, launching a public consultation period that runs until 27 January 2017. The draft guidance is very similar to leveraged lending guidance issued by the US federal banking agencies in 2013, which has had a significant impact on the leveraged lending market in the US. There are some significant differences between that ECB’s guidance and the US guidance that could raise issues of competitive equality between US, European and other banks. Below we highlight some of the important differences between the US guidance and the ECB’s draft guidance. 

By Christopher Kandel

We have already commented on the strong growth of the covenant-lite market in Europe for leveraged loans. The combination of a supply/demand imbalance in European leveraged loans — too little supply and much investor demand — and competition from the US leveraged loan market, has resulted in strong growth in the European covenant-lite loan market since the beginning of 2014. There has also been a loosening of covenants generally for mid and top-tier European loan financings, whether taking the covenant-lite form or not.

News from China and other emerging markets and the general decline in various commodity prices, together with concerns over the possible effects of an increase in interest rates in the US, have caused volatility in the equity markets. This volatility has also been reflected, to differing degrees, in the high yield and leveraged loan markets around the world.