Vol 22 (2025) - Issue 6

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Liability Management Exercises In Europe: What Do They Mean for Lenders? – Part One

Synopsis
Liability management exercises ('LMEs'), originally a phenomenon of the bond world, have spilled over to the senior secured leveraged finance market in the US for a number of years as a result of the prevalence of covlite, among other factors. Drop downs, uptiers, double dip and pari plus transactions – all forms of LMEs – are now starting to be seen in Europe.
In the US, creditors' response to the recent round of LMEs has been described as a 'whack a mole' approach – each type of LME generates a specific documentary response, which is often only included in the post-LME documentation. Creditors' search for an omni-blocker is continuing.
This Part One covers what LMEs are, documentary provisions and responses and their use in the US. Part Two, which will be published in the next edition, covers the use of LMEs in Europe and potential legal issues to be considered.