Latham Watkins Second Lien Loans

Everything You Always Wanted
To Know About
Second Lien Financings
A
LATHAM & WATKINS
PRESENTATION
May 19, 2004
Latham & Watkins operates as a limited liability partnership wor ldwide with an affiliate in the United Kingdom and Italy, where
the practice is conducted through an affiliated multinational partnership © Copyright 2003 Latham & Watkins. All Rights Reserved. 1
Speakers
James Chesterman Peter M. Gilhuly

Banking and Leveraged Finance Group Insolvency Group
Latham & Watkins, London Office Latham & Watkins, Los Angeles Office
+44.20.7710.1004 212.891.8720
james.chesterman@lw.com peter.gilhuly@lw.com
David G. Crumbaugh Marc P. Hanrahan

Banking and Leveraged Finance Group Banking and Leveraged Finance Group
Latham & Watkins LLP, Chicago Office Latham & Watkins LLP, New York Office
312.876.7660 212.906.2976
david.crumbaugh@lw.com marc.hanrahan@lw.com
Kirk A. Davenport David S. Heller

Corporate Finance Group Insolvency Group
Latham & Watkins LLP, New York Office Latham & Watkins LLP, Chicago Office
212.906.1284 312.876.7670
kirk.davenport@lw.com david.heller@lw.com
2
What Are We Going to Cover Today
• The Various Flavors of Second Lien Financings

• The Pros and Cons From All Perspectives
• “Debt” Subordination vs. “Lien” Subordination
• What Makes Secured Creditors So Special?
• What Makes a “Silent Second” Silent (and What are the
Practical Implications)?
• Some Common Real World Scenarios
• How Do We Document These Transactions?
• Conclusions
3
The Various Flavors of Second Lien Financings
• We are here to talk about the two most common versions

• Second Lien High Yield Bonds
• Second Lien Term Loans
• We will not discuss some of the more esoteric flavors
(seller paper, sponsor loans, distressed/rescue paper)
• We will not discuss secured mezzanine financings
4
• Second Lien Bonds

• Often called “Secured Senior Notes” or “Second Lien Secured
Notes,” these creatures are just like any other high yield
bonds – except they are secured
• No “maintenance” covenants or cross default provisions
• Key covenant differences from an unsecured high yield deal
include
• Hard dollar cap on future first lien debt
• Very tight ratio limiting future second lien debt
• In other words, the liens covenant becomes the key limitation
on future debt incurrence, not the debt covenant
- future unsecured debt may only be a hypothetical
possibility for some time
5
• Second Lien Term Loans

• Investors are usually typical Term Loan B purchasers (e.g.,
hedge funds)
• Maturity longer and certain other economic terms are richer
than typical Term Loan B paper
• Covenants are “lighter” than first lien debt:
• Sometimes very close to high yield covenants
• Other times, it’s the 1st lien covenant package ratcheted back
• There will always be a limit on the amount of 1st lien debt (may
include a “cushion”)
• Financial covenants – fewer in number and less restrictive
than 1 st lien debt
6
• Second Lien Term Loans (cont’d)

• Mandatory prepayments – same categories as 1 st lien
mandatory prepayments, but no mandatory prepayments
required on 2 nd lien debt so long as 1 st lien debt requires that
such mandatory prepayment be applied to 1st lien debt
• Not cross-defaulted to 1st lien debt until passage of 45-90 day
period; in some “bond like” deals, only cross-
acceleration/cross payment default
• Change of control often cast as “put option” rather than
event of default
• Prepayment premiums often apply (but better from the
borrower’s perspective than typical high yield bonds)
7
Market Data
• There has been exponential growth in the second lien financing

market in the last year
• Second lien loans raised over $5.23 billion in the first four
months of 2004, compared with approximately $3.26 billion for
all of 2003
• Volume of second lien loans for the first four months of 2004 was
almost double the total deal volume for 2003, increasing from 26
to 49 deals
• The increase in second lien bond deals has also been dramatic
(although somewhat less astronomical)
Source: Standard & Poor’s / Leveraged Commentary & Data
8
Volume and Number of Second Lien Loans 1997-2004
Volume Number
$7,000 60
57
6122
$6,000
$5,000
In Millions
$4,000
3256
30
26
$3,000
$2,000
12
9
$1,000 690 570
394 5
195 140 65 3 3
2
$0 0
1997 1998 1999 2000 2001 2002 2003 2004 1997 1998 1999 2000 2001 2002 2003 2004
1/1- 5/13 5/14-12/31 1/1- 5/13 5/14-12/31

9
Average Deal Size of Second Lien Loans 1997 – 5/13/2004
$300
$190
$200
$125 $116
$98 $104
$100 $90
$68
$33 $28 $22
$0
97
98
99
00
01
02
03
03
04
/04
19
19
19
20
20
20
20
4Q
1Q
13
-5/
4/1
10
Average Debt/EBITDA Ratio for Transactions with Second Lien
Loans 2003
4/1/2004 to 5/13/2004
8.0x
6.0x
5.1
0.5 4.5
4.2 4.2 0.1
0.3 0.3
4.0x 0.5 0.5
0.1 0.2
1.4 1.1
1.3 1.5
2.0x
2.8 2.9
2.3 2.1
0.0x
2003 (26) 4Q03 (12) 1Q04 (30) 4/1-5/13/04(19)
First Lien Bank Debt Second Lien Bank Debt Other Senior Debt Sub Debt

11
Recent Precedent
Company Transaction Date
Midwest Generation, LLC $1,000,000,000 8.75% Second Priority Senior Secured 2004
Notes due 2034
U.S. Security Holdings, Inc. $146,000,000 First and Second Lien Credit Facilities 2004
Calpine Generating Company LLC $1,705,000,000 First Priority Secured Floating Rate Notes due 2009 2004
Second Priority Secured Floating Rate Notes due 2010
Third Priority Secured Floating Rate Notes due 2011
11.5% Third Priority Secured Notes due 2011
Transwestern Publishing Company, LLC $665,000,000 First and Second Lien Credit Facilities 2004
Cebridge Connections, Inc. $350,000,000 Senior Secured First and Second Lien Term Loan 2004
Plastech $50,000,000 Senior Secured Second Lien Term Loan 2004
Playtex Products, Inc. $460,000,000 8% Senior Secured Notes due 2011 2004
Carmike Cinemas, Inc. $150,000,000 Senior Secured First and Second Lien Credit 2004
Facilities
American Casino & Entertainment $215,000,000 7.85% Senior Secured Notes due 2012 2004
NRG Energy, Inc. $475,000,000 8.00% Second Priority Senior Secured Notes due 2013 2004
Tri-State Outdoor Advertising $50,000,000 Senior Secured First and Second Lien Credit Facilities 2004
12
Recent Precedent
Atlantic Express Transportation Corp. $115,000,000 12% Senior Secured Notes due 2008 and Senior 2004
Secured Floating Rates Notes due 2008
Tensar $112,000,000 Secured First Lien Secured Second Lien Facilities 2004
Leedsworld $93,000,000 Secured First Lien Secured Second Lien Facilities 2004
Ranpak $140,000,000 Secured First Lien and Secured Second Lien Facilities 2004
Roller Bearing $220,000,000 Secured First Lien and Secured Second Lien Facilities 2004
Cognis Deutschland GmbH& Co. KG € 745,000,000 Floating Rate Second Lien Notes due 2013 2004
and Senior Notes due 2014
Mueller Group, Inc. $100,000,000 Second Priority Senior Secured Floating Rates due 2011 2004
Nellson Neutraceuticals $360,000,000 First and Second Lien Term Loans 2004
Holland USA $92,500,000 Secured First Lien and Secured Second Lien Facilities 2003
NRG Energy, Inc. $1,250,000,000 8% Second Priority Senior Secured Notes due 2013 2003
13
Recent Precedent
American Reprographics Company, LLC $355,000,000 First and Second Lien Credit Facilities 2003
Calpine Corporation $400,000,000 9.875% Second Priority Senior Secured Notes due 2003
2011
Dynegy Holdings Inc. $300,000,000 9.875% Second Priority Senior Secured Notes due 2010 2003
10.125% Second Priority Senior Secured Notes due 2013
Advanstar Communications, Inc. $70,000,000 10.75% Second Priority Senior Secured Notes due 2010 2003
Calpine Construction Finance Company, L.P. $365,000,000 Second Priority Senior Secured Floating Rate Notes 2003
due 2011
Holland USA $66,500,000 Secured First Lien and $26,000,000 Secured Second Lien 2003
Facilities
Venetian Macau, S.A. $120,000,000 Tranche A Floating Rate Senior Secured 2003
Notes due 2008, Tranche B Floating Rate Senior Secured
Notes due 2008
Advanstar Communications, Inc. $360,000,000 Second Priority Senior Secured Floating Rate Notes 2003
due 2008, 10.75% Second Priority Senior Secured Notes due 2010
14
Recent Precedent
Dynegy Holdings Inc $1,450,000,000 Second Priority Senior Secured Floating Rate Notes 2003
2008, 9.875% Second Priority Senior Secured Notes due 2010,
Calpine Corporation $2,550,000,000 Second Priority Senior Secured Floating Rate Notes 2003
due 2007, 8.5% Second Priority Senior Secured Notes due 2010,
Dayton Superior Corporation $165,000,000 10.75% Senior Second Secured Notes due 2008 2003
O’Sullivan Industries $100,000,000 10.63 % Senior Secured Notes due 2008 2003
Environmental System Products, Inc. $300,000,000 Senior Secured First and Second Lien Credit 2003
Facilities
Wynn Las Vegas, LLC and Wynn $370,000,000 12% Second Mortgage Notes due 2010 2002
Las Vegas Capital Corp.
Venetian $850,000,000 11% Mortgage Notes due 2010 2002
Transportation Technologies $265,000,000 Senior Secured First and Second Lien 2002
Facilities
15
The Pros and Cons of Second Lien Financings
(The Company’s Perspective)
• Why would a company ever want to give collateral to its junior

creditors?
• Better interest rate
• Better market access
• May be only way to get deal done
• Why would a company not want to do a second lien deal?
• Limits future financing options
• Cap on future first lien debt
• Strict limit on future second lien debt
• Practical limitation on future unsecured debt
• Incremental transaction costs
16
(The Senior Bank’s Perspective)
• Historically, first lien creditors have enjoyed exclusive

control of collateral
• First lien creditors are naturally inclined to object to
sharing “their” collateral with junior creditors
• First lien creditors fear that second lien creditors may
assert rights that will interfere with their ability to call the
shots and realize value in the collateral
• They never want to wake up in a distress scenario and wish
they didn’t have to deal with second lien creditors’
competing interests
17
(The Senior Bank’s Perspective)
• First Lien Creditors, given the choice, would prefer debt

subordination (to be discussed) to lien subordination
• However, if their exposure is reduced, they can get to yes
• They may be getting paid down with the proceeds of the second
lien deal
• They may only get to yes if the second lien is a “silent second”
18
(The Second Lien Creditor’s Perspective)
• Second Lien Creditors Will Accept a “Silent Second” Lien

Because it is Better to be Secured than Unsecured
• Black letter bankruptcy law provides that you are entitled to
the “value of your interest in”collateral in bankruptcy
• Secured creditors collect ahead of the trade and other
unsecureds (to the extent there is value in their interest in the
collateral)
• Secured creditors can get post-petition interest if they are
oversecured
• Secured creditors have better rights in bankruptcy (even
though some of those rights may be waived as part of
making the lien a “silent” second)
• Bottom line: secured creditors recover more in bankruptcy
than unsecured creditors
19
Debt Subordination vs. Lien Subordination
• What are the key differences?

• Debt subordination involves an agreement to turn over to
holders of “senior debt” everything received from the
borrower from any source
• Debt subordination also typically includes payment blockage
provisions
20
Debt Subordination vs. Lien Subordination
• What are the key differences?

• Lien subordination only requires turnover to first lien creditors of
proceeds of shared collateral
• There is no payment blockage in typical second lien deals
• Waiver of rights is generally confined to the special rights of secured
creditors relating to collateral only
• Rights of unsecured creditors are specifically preserved (with a few
narrow exceptions)
• Antilayering covenants in existing high yield debt may only
restrict debt subordination and not lien subordination
• Depends on exact wording of covenant (subordinated “in right of
payment” vs. “in any respect”)
21
What Makes Secured Creditors So Special?
• Pre-bankruptcy
• Right to foreclose and realize value
• This remedy is almost never consummated, but its existence
creates negotiating power
• In bankruptcy
• Priority vis-à-vis trade and other unsecured creditors
• Post-petition interest
• “Adequate protection” rights
• Harder to be “crammed down”
• Right to credit bid
• More leverage in plan negotiations
22
What Makes Secured Creditors So Special?
• In Bankruptcy
• “Adequate protection” rights entitle a secured creditor to
protection against diminution in the value of its collateral
during a bankruptcy
• “Adequate protection” rights are very broad and crop up in a
variety of circumstances
• Right to object to mischief relating to collateral
• Right to object to uses of cash collateral
• Right to object to sales of collateral
• Leverage to prevent/modify DIP financing
• Right to request current payment of post-petition interest
• “Adequate protection” is where much of the action is in these
intercreditor discussions
23
What Makes a “Silent Second” Lien Silent?
• Second lien creditors must agree by contract to give up some of

their rights
• General idea is to preserve whatever rights you would have had
as an unsecured creditor but defer to the first lien creditors as to
how to exercise the special rights of secured creditors
• First lien creditors want to “drive the bus”
• Second lien creditors want to make sure that in allowing 1st lien
creditors to drive the bus the interests of 2nd lien creditors are not
unfairly disregarded
• The collateral trust agreement or intercreditor agreement will
spell out just how silent is “silent”
• This is where the flashpoints are in negotiations
24
• There is some consensus in both the bond and the term loan
markets about the extent to which second lienholders should
waive their secured creditor rights
• There are some areas that are still hotly contested
• Adequate protection waivers
• Scope and duration of enforcement standstills
• Waiver of right to vote in bankruptcy
• The bond market conventions are more settled than the term
loan market conventions
25
Issue High Yield Market Term Loan Market
Waiver of right to Typically waived Waiver often expires

exercise remedies until 1st lien debt is after 90-180 days
against collateral paid in full
Practical Implications:
• First lien banks “drive the bus” (at least for a while)
• Term loans may get into the mix after standstill expires
• Company is more likely to be pushed into bankruptcy after
standstill expires
26
Waiver of right to Waiver almost Waiver almost

challenge first liens always given always given
• Not a significant concession by the second lien holder since
challenging the first liens is probably a dangerous game
• People in glass houses shouldn’t throw stones
27
Waiver of right to Waiver almost Waiver almost

oppose adequate always given always given
protection for 1 st
lienholders
• Not a significant concession
• Second lienholders want to see first lien debt get paid
• Second lienholders should have “tag along” rights if first lien
creditors obtain new collateral
28

Waiver of right to seek Typically waived until Sometimes waived, but
adequate protection for 1st lien debt is paid in may be a fiercely
2nd lien holders full (subject to “tag negotiated point
along” rights)
• Second lienholders should have “tag along” rights to protect liens on
“quick assets” and to reduce opportunities for mischief
• This is a very broad waiver and can have real consequences
• However, in many cases, if second lienholders have “tag along”
rights and virtually all of the company’s assets are already part of
collateral package, this waiver may be acceptable
29

Advance consent to uses Advance consent usually Advance consent usually
of cash collateral given given
approved by 1st
lienholders
• Use of cash collateral is critical to the company in bankruptcy
• First lien lenders will typically negotiate a strict operating
budget as part of their agreement to release cash collateral for
use in the business
• Second lien lenders will not participate in these budget
negotiations
• First lien debt will “drive the bus”
30

Advance consent to DIP Advance consent usually Advance consent usually
financings approved by given (if 1st lien creditors given (if 1st lien creditors
1st lienholders “share the pain”) “share the pain”) –
possibly subject to a hard
dollar cap
• Probably not much likelihood of a 2 nd lien creditor
successfully objecting to a DIP loan that primes (or is pari
passu with) the 1st lien debt if other constituents support it
• Is important to limit advance consent to “share the pain”
scenarios
31

Waiver of voting Often not waived at all. If waived, Generally not waived
rights on a plan of usually limited to waiver of right to
reorganization vote for a plan that 1st lien creditors
vote down
• This waiver is objectionable in that it can cause second lien
creditors to be in a worse position than unsecured creditors
in plan negotiations
• Consequences could be very expensive
32

Release of second Automatic release for asset sales Automatic release for
liens outside of that satisfy bond covenants. asset sales that satisfy
bankruptcy “On/off” switch often in hands of second lien covenants
1st lienholders even where no asset only. Second lien
sale involved (unless “all or term lenders want
substantially all” of collateral at their own “on/off”
stake). Note TIA issue switch
• Not a significant concession in most scenarios
• Second lienholders likely have an “asset sale” covenant that will limit
opportunities for mischief
• Unlikely that first lienholders will release any collateral except where
they are getting paid down with sale proceeds
• However, possibility for mischief is still present
33

Release of second Advance agreement not to object to Advance agreement
liens during a collateral sales approved by 1st lien not to object to
bankruptcy debt collateral sales
approved by 1st lien
debt
• Not a significant concession
• 2nd lien creditors would not likely succeed in blocking a
Section 363 sale supported by other constituents
• Bankruptcy process and fiduciary duties keep opportunities
for mischief to a minimum
34

Scope of collateral Limited by Regulation S-X Section Same as 1st lien debt
package 3-16. Also usually includes
generous “basket.” Also note Trust
Indenture Act Section 314(d) issue
• Failure to obtain subsidiary stock pledges could be
significant, depending on nature of “hard asset” collateral
• TIA Section 314(d) is a headache
35

Right of 2nd lien Almost never included Sometimes included
debt to buy out 1st during limited
lien debt at par window following
plus accrued acceleration
• Not a huge point for either side
• If 2nd lien debt has both the will and the means to repay the
1st lien debt at par, a deal will likely be struck without regard
to what the documents say
36
Some Real World Scenarios
Let’s assume the following fact pattern:

• Widgets.com has borrowed $1.0 billion under its first lien bank credit
agreement and issued $1.0 billion of second lien high yield
bonds/term loans
• The banks have a “blanket” first lien on all of Widget’s assets except
real estate
• The bonds/term loan have a “blanket” second lien on all of Widget’s
assets including real estate
• At the time Widgets files for bankruptcy, the collateral is worth $1.5
billion and the real estate is worth $500 million
• In two years, when a plan of liquidation is confirmed, the collateral is
sold for $1.2 billion and the real estate is sold for $300 million
37
Real World Scenarios – Variation #1
• Covenant default occurs on first lien debt

• What rights do second lien creditors have?
38
• First lien debt holders negotiate with

Widgets.com to consensually sell collateral to pay
down first lien debt
• Can second lien holder object?
• What if the assets sold were not part of the
collateral?
39
• Payment default occurs under first lien debt

• Second lien debt can accelerate (probably)
• Unsecured (or undersecured) creditors can put
company into bankruptcy
40
• Payment default occurs plus 180 days pass

• Standstill period expires if second lien debt is term
loan flavor
41
• Company files for bankruptcy

• First day motions are proposed for:
• Use of cash collateral
• First lien defensive DIP financing
• What rights do second lien creditors have?
42
• Company files for bankruptcy and seeks

permission to sell inventory in ordinary course of
business
• First lien debt seeks adequate protection (e.g., asks
court for replacement lien in real estate)
• What rights do second lien holders have here?
• To challenge first liens’ adequate protection motion
• To assert their own adequate protection rights (“Hey –
what about me?”)
43
• Company files for bankruptcy

• First lien creditors ask for cash payment of post-
petition interest as “adequate protection”
• Can second lien creditors object?
• Can second lien creditors ask for cash payment of post-
petition interest for themselves during the bankruptcy?
44
Company files for bankruptcy

• First day motion to approve DIP financing by third
party potential acquiror
• Motion includes credit bid rights and rights to convert
DIP to equity
• What rights to second lien creditors have?
45
Company files for bankruptcy

• Company files first day motion for Kmart-like
mass liquidation
• Can second lien creditors object?
46
Company files for bankruptcy and elects to sell

crown jewel assets under Section 363
• First lien creditors can object on Section 363
grounds
• What right do second lienholders have?
47
How Do We Document These Transactions?
• Collateral Trust Agreement vs. Intercreditor Agreement

• Second lien bond deals tend to use collateral trust agreement
because of perceived independence associated with this
arrangement
• Second lien term loans tend to use intercreditor agreements
because of perceived “control” benefits to first lien holders
• No important substance to this distinction
48
How Do We Document These Transactions?
• Special Disclosure Issues in Bond Deals

• Risk Factors must explain collateral package
• Section 3-16 of Regulation S-X
49
Second Liens In Europe: A Different Ball Game
• Banking and capital markets developed differently in

Europe, with stronger lead bank relationships, with
mezzanine being sole subordinated debt source
• Restructurings generally take place out of court due to

different bankruptcy regimes, therefore consensual,
leading to greater “hold out” issues
• Second lien loans are predominantly mezzanine in LBOs

with relatively standard intercreditor provisions
• Second lien bond market intercreditor positions are still

evolving
50
Second Lien Loans / Mezzanine
• Originally provided by commercial banks with very few

independent mezzanine investors, leading to less
negotiation
• Well established market
• Guarantee and security package follows senior
• Usually includes debt subordination as well as lien
subordination
• Identical covenant and default package to senior (backed off
approximately 10%)
• Independent waiver and consent rights are typical
• Standstill customarily 90-150 days
51
Second Lien Bonds – European Style
• Evolution towards US model from historic structurally

subordinated deals in telecom sector
• Very few deals (Focus Wickes; Baxi; Cognis); all
unregistered
• Intercreditor position still moving around
• Guarantee and security package follows senior debt
• Payment blockage similar to US high yield market
• Standstills vary; mezz style on Cognis; Focus Wickes a
hybrid with permanent standstill on collateral
• Unanimity provisions reduced to 90% in Focus Wickes/
Baxi
52
SUMMARY - CONCLUSIONS
• If you are the first lien debt:
Must Haves Like to Haves

•Control over enforcement actions for •Control over enforcement actions
some period of time forever
•Ability to force asset sale free and clear of all liens •Ability to release both first and
•Agreement not to object to asset sales second liens outside of bankruptcy
in bankruptcy •Agreement not to object to
•Ability to put DIP in place any action taken by 1 st lien creditors
•Ability to obtain adequate protection without •Ability to vote claims of 2 nd lien creditors
objection from 2nd lien debt •Ability to put DIP in place ahead
•Agreement not to challenge first liens of 2nd lien debt but behind first lien
debt
53
• If you are the 2 nd lien creditor:

•Ability to assert rights of an unsecured • Limitation on duration of enforcement
creditor standstill
•Ability to vote your claims in a • Unfettered adequate protection rights
bankruptcy • Right to buy out 1 st lien debt at par plus
•”Tag along” rights whenever 1 st lien accrued
creditors get new collateral
54
• If you are the company:

• Some room for future • Lots of room for
borrowing capacity on a future secured
secured basis borrowings (both first and
(first or second lien) second lien)
• Lots of room
for future unsecured
borrowings
55
• The second lien market is here to stay

• Most of the critical intercreditor issues are the subject of a
market consensus (particularly in bond land)
• In the term loan market, a number of key issues are not yet
resolved
• Duration of enforcement standstill
• Extent of waiver of adequate protection rights
• As long as the market continues to reward companies who
are willing to provide collateral to their junior creditors,
these products will have a place on the corporate finance
menu
56

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Everything You Always Wanted

May 19, 2004

James Chesterman Peter M. Gilhuly

David G. Crumbaugh Marc P. Hanrahan

Kirk A. Davenport David S. Heller

• The Various Flavors of Second Lien Financings

• We are here to talk about the two most common versions

• Second Lien Bonds

• Second Lien Term Loans

• Second Lien Term Loans (cont’d)

• There has been exponential growth in the second lien financing

1/1- 5/13 5/14-12/31 1/1- 5/13 5/14-12/31

Source: Standard & Poor’s / Leveraged Commentary & Data

Source: Standard & Poor’s / Leveraged Commentary & Data

Company Transaction Date

Plastech $50,000,000 Senior Secured Second Lien Term Loan 2004

Company Transaction Date

Company Transaction Date

Company Transaction Date

Venetian $850,000,000 11% Mortgage Notes due 2010 2002

• Why would a company ever want to give collateral to its junior

• Historically, first lien creditors have enjoyed exclusive

• First Lien Creditors, given the choice, would prefer debt

• Second Lien Creditors Will Accept a “Silent Second” Lien

• What are the key differences?

• What are the key differences?

• Second lien creditors must agree by contract to give up some of

Issue High Yield Market Term Loan Market

Waiver of right to Typically waived Waiver often expires

Issue High Yield Market Term Loan Market

Waiver of right to Waiver almost Waiver almost

Issue High Yield Market Term Loan Market

Waiver of right to Waiver almost Waiver almost

Issue High Yield Market Term Loan Market

Issue High Yield Market Term Loan Market

Issue High Yield Market Term Loan Market

Issue High Yield Market Term Loan Market

Issue High Yield Market Term Loan Market

Issue High Yield Market Term Loan Market

Issue High Yield Market Term Loan Market

Issue High Yield Market Term Loan Market

Let’s assume the following fact pattern:

• Covenant default occurs on first lien debt

• First lien debt holders negotiate with

• Payment default occurs under first lien debt

• Payment default occurs plus 180 days pass

• Company files for bankruptcy

• Company files for bankruptcy and seeks

• Company files for bankruptcy

Company files for bankruptcy

Company files for bankruptcy

Company files for bankruptcy and elects to sell

• Collateral Trust Agreement vs. Intercreditor Agreement

• Special Disclosure Issues in Bond Deals

• Banking and capital markets developed differently in

• Restructurings generally take place out of court due to

• Second lien loans are predominantly mezzanine in LBOs

• Second lien bond market intercreditor positions are still

• Originally provided by commercial banks with very few

• Evolution towards US model from historic structurally

• If you are the first lien debt:

Must Haves Like to Haves

• If you are the 2 nd lien creditor: