Understanding, Analyzing and Resolving Issues Arising in Sophisticated Negative Covenant Negotiations in Mid-Cap and Small-Cap C&I Credit Documents
Middle Market commercial lending remains an important business segment for lending institutions. Larger institutions continue to rely on this segment for predictable revenue and cross-sell opportunities, while smaller lending institutions seek a greater share of this market to better diversify their loan asset portfolios, often compelled by regulatory demands. Borrowers in this segment also require ready access to capital of this type to support their on-going capital needs, as well as their expansion ambitions.
Competition among Lenders in this space remains fierce. When Lenders compete for commitments, the primary initial focus is usually around pricing and structural points. Once that battle has been won and the commitment have been secured, much of the tension falls to the negotiation of credit documentation that addresses the Lenders’ need for negative covenants consistent with its credit requirements. The tension comes from the Lender’s well-intentioned pursuit of restrictions to protect its credit investment and agreed upon return, and the Borrower’s good faith desire to avoid burdensome restrictions that could impede its business judgment exercised in the “ordinary” course of running a successful business. The tension is only magnified in pursuant of new relationships, and greater still with well-established borrowers with a track record of success notwithstanding the complexity as to their internal needs, intercompany activities and interactions with other creditors, vendors and other business stakeholders.
This presentation will give you a better understanding of typical/standard negative covenant variations and negotiation points in Mid-Cap and the top-end of the Small-Cap deals. The presentation will cover these points in the context of bi-lateral and syndicated loan transactions. The focus will be on (i) a Lender’s perspective as to why such restrictions are necessary, (ii) the objections frequently levied by Borrowers, and (iii) the compromises that can be struck to address these competing interest. We will also discuss the relative strengths and weaknesses of these compromises, the real world applications of these compromises and the documentation concerns we often encountered in drafting these solutions.
To illustrate the complexity of these real world applications, we will discuss certain of these negotiations and compromises in the context of several very well-publicized controversies involving covenant disputes. But, mainly we will be sharing with our audience our 30 plus years’ experience in crafting solutions that work for Borrowers and Lenders, alike.
Frank Quinn represents commercial lending institutions in their national and regional lending activities, as well as local lenders who are active in both the New Jersey and New York markets. Mr. Quinn is well experienced in: asset-based lending facilities, commercial mortgage transactions, capital asset acquisition facilities, working capital facilities, merger/acquisition and recapitalization financings, and tax-exempt structured finance matters. His transactions include single bank deals, club-bank deals, as well as nationally syndicated transactions. He is licensed to practice in New Jersey and New York and holds a J.D. from St. John's University School of Law, as well as a B.A. from the University at Albany.
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About Windels Marx
Windels Marx is a full service law firm headquartered in New York City, with offices in New Brunswick and Madison, New Jersey, and Stamford, Connecticut. The Firm has nearly 150 lawyers and provides services in excess of 20 practice areas, the largest of which by volume of business are financial transactions, real estate, litigation, and bankruptcy. The Firm serves a myriad of domestic and foreign clients, including banks and finance companies, insurance companies, manufacturers, non-profit entities, and government sponsored enterprises. Learn more at www.windelsmarx.com or on LinkedIn or Twitter@WindelsMarx.