Second Lien Financings –

Total Page:16

File Type:pdf, Size:1020Kb

Second Lien Financings – Number 382 April 15, 2004 Client Alert Latham & Watkins Corporate and Finance Departments Second Lien Financings—Answers to the Most Frequently Asked Questions The purpose of this client alert is to the two most common forms of this new answer some of the most frequently product which are being sold in the asked questions about second lien capital markets—second lien term loans financings. These financings have designed for sale in the institutional become increasingly popular over the loan market and second lien high yield last year or so, and we think they offer a bonds. As we discuss below, there are financing alternative that will remain on many similarities between these two the menu for years to come. There is a products. However, there are also a distinct lack of agreement in the market number of important differences. regarding some of the critical issues that At the end of this client alert, we have bankers and lawyers structuring these included a chart summarizing the key deals must address, and so we will not issues to address in structuring a second always offer a single answer for each of lien financing. The chart indicates how the questions we pose. However, there those issues are currently being There is a growing is also a growing consensus among the “ resolved in the debt markets. consensus among members of the finance community on many of these questions and we are the members pleased to report on that consensus as What is a Second Lien Term Loan? of the finance we see it. A typical second lien term loan is a “term loan B”1 secured by a lien on community on Perhaps the best place to start the substantially all of the borrower’s assets. dialogue is with the question “What is a many of these In some cases, the term loan B will be second lien financing?” The answer to questions and secured equally and ratably with a pari that simple question is surprisingly passu tranche of secured bonds. we are pleased complex. Some second lien deals are Alternatively, the term loan B might be secured mezzanine financings with to report on that the only second lien debt in the capital equity kickers. Others involve seller consensus as structure. In either event, the term loan paper issued in acquisitions to the B lenders will almost certainly be we see it.“ former owners of the acquired business sharing the capital structure with at or notes issued to the borrower’s equity least one other credit facility of the more owners. Still others involve asset-based traditional variety—possibly just a lenders secured by a first lien on current revolver or possibly a term loan and assets and a second lien on property, revolver—secured by a first lien on plant and equipment sharing the substantially the same collateral. The balance sheet with high yield bonds second lien term loan is denominated secured by a first lien on property, plant “second” because the two classes of and equipment and a second lien on creditors agree that, in the event any of current assets. The variations are their shared collateral is ever sold in a endless. In this client alert, we focus on Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership. © Copyright 2004 Latham & Watkins. All Rights Reserved. Latham & Watkins | Client Alert foreclosure or other enforcement action, the capital markets at all. Some either before or during a bankruptcy borrowers may also perceive holders of proceeding, the “first lien” credit facility second lien debt to be potentially less (and all other “first lien” obligations, if “volatile” in a distress scenario than any, that are then outstanding) will be unsecured creditors to the extent those entitled to be paid in full before any of holders believe they are sufficiently the proceeds from the shared collateral secured to successfully ride out a period sale will be distributed to the “second of poor financial performance. lien” term loan lenders. The second However, there are costs to the borrower lien term loan is not contractually associated with providing collateral to subordinated in the traditional sense the holders of its junior debt. First, as (i.e., payment subordination), but it is part of the deal structure, the second subordinated in its claim to the proceeds lien covenant package will likely impose of the shared collateral. a more restrictive cap on the amount of additional first lien debt that may be What is a Second Lien Bond Deal? incurred in the future than would appear In its simplest form, a second lien bond in an unsecured high yield bond deal is much the same as a second lien indenture. In addition, depending on the term loan—it involves a bond deal value of the collateral and the cash flow secured by substantially all of the of the enterprise, the borrower’s ability issuer’s assets where the bondholders to obtain first lien financing in the have agreed with the holders of “first future may be impaired by the presence lien” debt that they will be second in of a significant tranche of second lien line as to distributions of proceeds from secured debt on its balance sheet. sales of shared collateral. As in the case Further, the total amount of additional of second lien term loans, the typical second lien debt that may be incurred in second lien bond deal is not the future will also be capped, usually contractually subordinated in the based on a maximum leverage ratio or traditional sense. The bonds are only other financial test. Finally, it may be second in line with respect to the harder for the borrower to tap the proceeds from sales of shared collateral. unsecured debt market in the future These bonds are usually called “senior because future unsecured creditors of secured notes” or “second lien senior the borrower would be effectively secured notes” or some similar variation subordinated to all of the second lien on that theme. debt. What are the Pros and Cons of a Why Would a First Lien Creditor Second Lien Deal for a Company? Want to Permit a Second Lien Deal? A borrower should get better pricing on In general, first lien lenders do not favor a second lien financing than it would by providing collateral to junior creditors. incurring unsecured debt on However, in some cases the proceeds substantially the same terms. In from the second lien deal are needed to addition, a borrower will get broader make a transaction feasible or are access to the debt markets because of earmarked to pay down first lien debt or the tremendous interest in second lien will effectively limit the amount of first paper across a range of institutional lien debt needed going forward. With a investors, including financial lower level of credit exposure, the first institutions, insurance companies, lien lenders may become significantly mutual funds, CBO, CDO and CLO funds more flexible and the increased and hedge funds.2 For some companies, “cushion” provided by the second lien this deeper level of market interest can debt may make the remaining first lien make the difference between being able debt easier to syndicate. In addition, the to do a deal and not having access to first lien creditors can protect their 2 Number 382 | April 15, 2004 Latham & Watkins | Client Alert interests through a lien subordination in the first place. We will then discuss agreement that strips the second lien which of these rights second lien creditors of most of the secured creditor bondholders and second lien lenders rights they might otherwise exercise to may be willing to part with. the detriment of the first lien creditors. This leaves the second lien creditors What is the Difference Between with a “silent second” lien. Debt Subordination and Lien Subordination? Why Would a Junior Creditor Basics. In traditional contractual be Willing to Accept a “Silent subordination, the debt claim itself is Second” Lien? subordinated. If a subordinated debt Even a “silent second” gives a second holder obtains anything of value in a lien creditor effective priority over trade bankruptcy from any source, it agrees to creditors and other unsecured creditors, turn it over to the holders of “senior up to the value of its interest in the debt” until the senior debt is paid in collateral. In terms of payment priority, full. In lien subordination, the liens are “silent second” status does not affect subordinated; the underlying debt claim the value of being secured—a second is not. What this means is that the lien creditor is always better off in this holder of second lien debt only agrees regard than it would be if it were to turn over proceeds from sales of unsecured. In addition, under the lien shared collateral to the holders of first subordination agreement in most deals, lien debt. The holder of a second lien the second lien creditors expressly secured claim does not have to turn over reserve all of the rights of an unsecured funds to the holders of first lien debt creditor, subject to some important distributed to it from other sources. exceptions. Priority vis-à-vis the trade. In its simplest terms, debt subordination places the Some Important Background subordinated debt behind the senior Information debt, but does not place it ahead of any other debt of the borrower (unless So far, we have established that second holders of that other debt agree, in turn, lien debt holders get paid second when to subordinate their debt to the it comes to proceeds of collateral.
Recommended publications
  • COMP Operations
    EUROPEAN COMMISSION Brussels, 20.02.2013 C (2013) 775 final In the published version of this decision, PUBLIC VERSION some information has been omitted, pursuant to articles 24 and 25 of Council This document is made available for Regulation (EC) No 659/1999 of 22 information purposes only. March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […]. COMP Operations Subject: State aid SA.35956 (2013/C) (ex 2013/NN) (ex 2012/N) – Estonia Rescue aid to Estonian Air Sir, The Commission wishes to inform Estonia that, having examined the information supplied by your authorities on the measures referred to above, it has decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union. 1. PROCEDURE (1) On 3 December 2012, in the context of pre-notification contacts, Estonia submitted to the Commission information on its plans to provide rescue aid in favour of AS Estonian Air (hereinafter "Estonian Air" or "the airline") as well as T.E. hr. Urmas PAET Välisminister Islandi väljak 1 15049 Tallinn ESTONIA Commission européenne, B-1049 Bruxelles – Belgique Europese Commissie, B-1049 Brussel – België Telefon: 00 32 (0) 2 299 11 11. on several capital injections carried out in the past. A meeting with representatives of the Estonian authorities took place on 4 December 2012. (2) Following these pre-notification contacts, by SANI notification number 7853 of 20 December 2012, Estonia notified to the Commission the planned provision of rescue aid to the airline in the form of a loan amounting to EUR 8.3 million.
    [Show full text]
  • FIN501-10-S3A-VC Term Sheet
    BLACK BOX TECHNOLOGY, INC. Term Sheet These terms do not constitute any form of binding contract but rather are solely for the purpose of outlining the principal terms pursuant to which a definitive agreement may ultimately be entered into. Security and Percentage 1,000,000 shares of Series A Convertible Preferred Stock (the of Equity: “Preferred”) at an issue price of $2.00 per share (“Original Purchase Price”). The Preferred is convertible into Common Stock representing [30%-70%] of the outstanding securities of the Company on a fully diluted basis. Valuation: $2,000,000 pre-financing; $4,000,000 post-financing TERMS OF THE PREFERRED STOCK: Rights, Preferences, (1) Dividend Provisions: Privileges and (A) Current Dividend: Dividends shall accrue on each share Restrictions of of the Preferred at the rate of [8%-15%] per annum Preferred Stock: payable quarterly. No dividends shall be paid on the Common Stock until all accrued but unpaid dividends have been paid on the Preferred. (B) Pari Passu Dividend: Preferred shall be entitled to dividends at the same rate as the Company’s Common Stock when and as declared on the Common Stock, based on the number of whole shares of Common Stock into which the Preferred is convertible on the date any dividend is declared. (C) Cumulative Dividend: ISSUES: Dividends shall accrue on each share of Preferred on a • Investor generally wants cumulative basis at the rate of [8%-15%] per annum. some guaranteed rate of Cumulative dividends shall be payable only in the event of return before Common a liquidation, dissolution or winding up of the Company or Stock receives anything - upon redemption.
    [Show full text]
  • The Anti-Deprivation Rule and the Pari Passu Rule in Insolvency
    The Anti-deprivation Rule and the Pari Passu Rule in Insolvency Peter Niven* In 2011 the UK Supreme Court delivered a judgment in Belmont Park Investments Pty v BNY Corporate Trustee Services Ltd that addressed the common law anti-deprivation rule. The anti-deprivation rule is a rule that is aimed at attempts to withdraw an asset on bankruptcy, with the effect that the bankrupt’s estate is reduced in value to the detriment of creditors. The underlying public policy is that parties should not be able to contract to defeat the insolvency laws. The Supreme Court in Belmont recognised, for the first time, that there are two distinct rules arising from that public policy, the anti-deprivation rule and the pari passu rule. The latter rule provides that parties cannot contract out of the statutory provisions for pari passu distribu- tion in bankruptcy. The Supreme Court’s judgment has been applied in a number of cases in the UK.This article examines Belmont and its application in two subsequent cases. 0There is a general principle of public policy that parties cannot contract out of the legislation governing insolvency. From this general principle two sub-rules have emerged: the anti-deprivation rule and the rule that it is contrary to public policy to contract out of pari passu distribution (the pari passu rule). The anti-deprivation rule is a rule of the common law that is aimed at attempts to withdraw an asset on bankruptcy, with the effect that the bankrupt’s estate is reduced in value to the detriment of creditors.
    [Show full text]
  • A Theory of the Regulation of Debtor-In-Possession Financing
    Vanderbilt Law Review Volume 46 Issue 4 Issue 4 - May 1993 Article 4 5-1993 A Theory of the Regulation of Debtor-in-Possession Financing George G. Triantis Follow this and additional works at: https://scholarship.law.vanderbilt.edu/vlr Part of the Banking and Finance Law Commons, and the Bankruptcy Law Commons Recommended Citation George G. Triantis, A Theory of the Regulation of Debtor-in-Possession Financing, 46 Vanderbilt Law Review 901 (1993) Available at: https://scholarship.law.vanderbilt.edu/vlr/vol46/iss4/4 This Article is brought to you for free and open access by Scholarship@Vanderbilt Law. It has been accepted for inclusion in Vanderbilt Law Review by an authorized editor of Scholarship@Vanderbilt Law. For more information, please contact [email protected]. A Theory of the Regulation of Debtor-in-Possession Financing George G. Triantis* I. INTRODUCTION .......................................... 901 II. THE REGULATION OF DIP FINANCING UNDER SECTION 364 ........................................ 904 III. FINANCIAL AGENCY PROBLEMS OF INSOLVENT FIRMS AND BANKRUPTCY LAW RESPONSES ............................. 910 IV. A MODEL OF JUDICIAL OVERSIGHT OF FINANCING DECISIONS UNDER SECTION 364 ................................. 918 V. CONCLUSION ............................................... 927 MATHEMATICAL APPENDIX ............................... 929 I. INTRODUCTION The profile of Chapter 11 of the Bankruptcy Code in public con- sciousness has surged recently. Other than the automatic stay on the enforcement of claims,1 the
    [Show full text]
  • First out Or Super Seniors – Same Difference?
    LEVERAGED FINANCE QUARTERLY Most first out facilities include simple turnover provisions with respect to proceeds First out or super received in contravention of the waterfall provision, while others include highly negotiated and bespoke intercreditor terms. Super seniors do not benefit from seniors – same subordination provisions, although they do benefit from turnover provisions which capture certain recoveries, typically with respect to collateral. difference? First out facilities should recover in priority to other senior secured debt in Chapter 11 The similarities and distinctions between typical proceedings. Super seniors, on the other hand, would not automatically take priority features of first out revolving credit facilities in the US, over other pari passu debt in a bankruptcy and super senior revolving credit facilities in Europe process in Europe. Instead, they are structured on the premise that in a default What is it? A standard super senior or first out scenario there will be an enforcement of a Labelled ‘first out’ in the US and ‘super waterfall provision provides that: single share pledge which captures the entire senior’ in Europe, this is a revolving credit • the obligations under the super senior or value of the group as a going concern, and facility (RCF) which has priority over other first out facility have top payment priority thereby enables a lender-driven financial pre- pari passu debt in relation to the proceeds of (except for payment of certain pack outside of formal bankruptcy enforcement of collateral and, in the US, enforcement-related and other amounts proceedings. guarantee recoveries. owing to agents of the pari passu creditors First out facilities in the US are relatively in their capacities as such); and, Control over enforcement uncommon and appear most often in middle- • following payment in full of the super A key issue for structures involving first out market financings and restructurings.
    [Show full text]
  • To Rank Pari Passu Or Not to Rank : That Is the Question in Sovereign Bonds After the Latest Episode of the Argentine Saga
    Law and Business Review of the Americas Volume 15 Number 4 Article 3 2009 To Rank Pari Passu or Not to Rank : That Is the Question in Sovereign Bonds after the Latest Episode of the Argentine Saga Rodrigo Olivares-Caminal Follow this and additional works at: https://scholar.smu.edu/lbra Recommended Citation Rodrigo Olivares-Caminal, To Rank Pari Passu or Not to Rank : That Is the Question in Sovereign Bonds after the Latest Episode of the Argentine Saga, 15 LAW & BUS. REV. AM. 745 (2009) https://scholar.smu.edu/lbra/vol15/iss4/3 This Article is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in Law and Business Review of the Americas by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. To RANK PARI PASSU OR NOT TO RANK PARI PASSU. THAT IS THE QUESTION IN SOVEREIGN BONDS AFTER THE LATEST EPISODE OF THE ARGENTINE SAGA Dr. Rodrigo Olivares-Caminal "Justice is the crowning glory of the virtues." CICERO (106-43 BC) "And maybe people who might consider lending money to the Repub- lic of Argentina in the future might realize what difficulties they're go- ing to run into if they are naive enough to rely on what the Republic offers." HON. THOMAS P. GRIESA 1 I. INTRODUCTION T can be said that the pari passu clause mistakenly migrated from secured private lending to unsecured sovereign lending.2 Once rooted in unsecured sovereign lending instruments, it faced certain provisions similar to those in Spain or the Philippines, which allowed a creditor to better position itself vis-d-vis other creditors, 3 and become a 1.Hon.
    [Show full text]
  • EFSF ESM New Investor Presentation
    European Financial Stability Facility & European Stability Mechanism June 2017 Contents 1. EFSF & ESM: Key Features, Structure and Instruments 2. EFSF & ESM: Lending Toolkit & Funding Activities 3. Why Invest in EFSF & ESM? 4. ECB’s QE Impact on ESM/EFSF Issuance and Spreads 5. EFSF & ESM Transactions 6. Appendix 1 Disclaimer IMPORTANT: YOU ARE ADVISED TO READ THE FOLLOWING CAREFULLY BEFORE READING, ACCESSING OR MAKING ANY OTHER USE OF THE MATERIALS THAT FOLLOW. THIS PRESENTATION AND ITS CONTENTS ARE CONFIDENTIAL AND ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES OF AMERICA, CANADA, AUSTRALIA OR JAPAN, OR TO ANY RESIDENT THEREOF (OTHER THAN IN THE UNITED STATES OF AMERICA TO CERTAIN QUALIFIED INSTITUTIONAL BUYERS AS DEFINED IN RULE 144A UNDER THE U.S SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT), OR ANY JURISDICTION WHERE SUCH DISTRIBUTION IS UNLAWFUL. THIS PRESENTATION IS BEING DELIVERED IN CONNECTION WITH A PROPOSED MEETING WITH THE EUROPEAN STABILITY MECHANISM ("ESM") AND COPIES OF THE PRESENTATION MUST BE RETURNED AT THE END OF THE MEETING. THIS DOCUMENT MAY NOT BE REMOVED FROM THE PREMISES. BY ATTENDING THE MEETING WHERE THIS PRESENTATION IS MADE, YOU AGREE TO BE BOUND BY THE FORTHCOMING LIMITATIONS AND TO MAINTAIN ABSOLUTE CONFIDENTIALITY REGARDING THE INFORMATION DISCLOSED IN THIS PRESENTATION. This presentation (the "Presentation") has been prepared by and is the sole responsibility of ESM, and has not been verified, approved or endorsed by any lead auditor, manager, bookrunner or underwriter retained by ESM. The Presentation is provided for information purposes only and does not constitute, or form part of, any offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of, or any solicitation of any offer to underwrite, subscribe for or otherwise acquire or dispose of, any debt or other securities of ESM (the "Securities") and is not intended to provide the basis for any credit or any other third party evaluation of Securities.
    [Show full text]
  • Large Banks and Private Equity-Sponsored Leveraged Buyouts in the Eu April 2007
    LARGE BANKS AND PRIVATE EQUITY-SPONSORED LEVERAGED BUYOUTS IN THE EU APRIL 2007 EMBARGO This report is free for publication from 3.00 p.m. ECB time (CEST) on Wednesday, 18 April 2007. ISBN 978-928990163-5 No data from the report may be released before the above embargo has expired. 9 789289 901635 Any publication that breaks the embargo will cease to receive texts in advance of the release time. LARGE BANKS AND PRIVATE EQUITY-SPONSORED LEVERAGED BUYOUTS IN THE EU APRIL 2007 In 2007 all ECB publications feature a motif taken from the €20 banknote. © European Central Bank, 2007 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone +49 69 1344 0 Website http://www.ecb.int Fax +49 69 1344 6000 Telex 411 144 ecb d All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. ISBN 978-92-899-0163-5 (print) ISBN 978-92-899-0164-2 (online) CONTENTS CONTENTS EXECUTIVE SUMMARY 4 1 INTRODUCTION 6 2 OVERVIEW OF THE EU’S LBO MARKET 8 2.1 The leveraged buyout market – concepts and characteristics 8 2.2 Key drivers of recent LBO activity in the EU 12 2.3 Evolving characteristics of LBO deals 16 3 SURVEY RESULTS 18 3.1 Banks’ exposures to LBO activity 21 3.2 Risk management and monitoring 32 3.3 Outlook for the EU’s LBO market according to the surveyed banks 36 4 ASSESSING RISKS TO FINANCIAL STABILITY 37 4.1 Potential financial stability risks from banks’ exposures 38 4.2 Potential financial stability issues originating from the macrofinancial environment 39 5 CONCLUSIONS 41 GLOSSARY 44 ANNEX 46 ECB Large banks and private equity-sponsored leveraged buyouts in the EU April 2007 3 EXECUTIVE SUMMARY related risks are spelt out in this report.
    [Show full text]
  • Restructuring Venezuela's Debt Using Pari Passu
    FAYYAD PUBLICATION VERSION(DO NOT DELETE) 12/8/2017 9:44 AM RESTRUCTURING VENEZUELA’S DEBT USING PARI PASSU ∗ ∗∗ KHALED FAYYAD & DIMITRIOS LYRATZAKIS ABSTRACT Given the depth of Venezuela’s economic crisis, many fear that the government and the state-owned oil company Petroleos de Venezuela, S.A. (“PDVSA”) are on the brink of insolvency. In this paper, we introduce a restructuring plan that would allow Venezuela to restructure its external debt in an orderly manner. We propose that Venezuela restructure both PDVSA debt and its own external debt via Exchange Offers. To maximize the number of participating bondholders and receive sufficient debt relief, we suggest that Venezuela primarily utilize the pari passu clauses included in the vast majority of PDVSA and Venezuelan bonds, which are modified versions of a typical pari passu clause and can be read to allow the subordination of the bonds in accordance with Venezuelan law. To minimize the number of holdout creditors, Venezuela can introduce a law that subordinates non-exchanged debt to exchanged debt, making timely or full payment of holdout debt unlikely. This tactic would minimize the need to rely solely on alternative restructuring techniques, such as exit consents and Collective Action Clauses (CACs). We argue that while these techniques might alone prove insufficient to successfully restructure Venezuela’s debt, they could supplement the restructuring options we propose here. Because the parties contracted for debt subordination in the bond contracts, we predict that using a debt subordination technique would be more viable in Venezuela’s case than it has been in past sovereign debt restructurings.
    [Show full text]
  • Leveraged Finance Outlook: the Rise of Secured Bonds in M&A Deals
    Debevoise Update D&P Leveraged Finance Outlook: The Rise of Secured Bonds in M&A Deals February 21, 2019 Early 2019 has seen a wave of issuances of secured bonds to finance large acquisitions. The likelihood of slower rate increases by the Fed has led to an uptick in investor demand for secured bonds while making the pricing on such bonds more attractive for issuers. While issuers in recent years generally preferred term loans to bonds, last month, Dun & Bradstreet, TransDigm and CommScope increased the size of their secured bond tranches in response to investor demand. This update reviews some key considerations when issuing secured bonds in lieu of term loans or unsecured bonds. KEY CONSIDERATIONS Call Protection. The call schedule for recent secured bond offerings is generally the same as that for unsecured bonds. While it had been common to see secured bonds in which 10 percent of the bonds could be redeemed annually for the first three years (generally the no-call period) at a three percent premium, most secured bonds are now being issued without that feature. Ability to incur secured debt. The covenants in secured bond indentures are generally the same as those in unsecured bonds with a few key differences: Secured bonds frequently permit debt to be secured by junior liens so long as the debt covenant permits such debt to be incurred. In some cases, junior lien debt is excluded when calculating any consolidated secured leverage ratio for ratio debt incurrence under the applicable covenants. Second lien secured bonds usually do not have the benefit of an anti-layering covenant restricting the incurrence of 1.5 lien debt.
    [Show full text]
  • Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 1 of 185
    Case 20-11768-CSS Doc 14 Filed 07/03/20 Page 1 of 185 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE -------------------------------------------------------- x : In re: : Chapter 11 : Lucky Brand Dungarees, LLC, et al.,1 : Case No. 20-11768 (_____) : Debtors. : (Joint Administration Requested) : -------------------------------------------------------- x MOTION OF DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTORS TO (A) OBTAIN POSTPETITION FINANCING, AND (B) USE CASH COLLATERAL, (II) GRANTING ADEQUATE PROTECTION TO THE PREPETITION LENDERS, (III) GRANTING LIENS AND SUPERPRIORITY CLAIMS, (IV) MODIFYING THE AUTOMATIC STAY, (V) SCHEDULING A FINAL HEARING, AND (VI) GRANTING RELATED RELIEF The above-captioned debtors and debtors in possession (collectively, the “Debtors”) respectfully represent as follows in support of this motion (this “Motion”):2 RELIEF REQUESTED By this Motion, the Debtors seek entry of an interim order, substantially in the form attached hereto as Exhibit A (the “Interim Order”), and a final order (the “Final Order” and, together with the Interim Order, the “DIP Orders”): (i) authorizing the Borrower (as defined below) to obtain secured postpetition financing (“DIP Financing”) on a superpriority basis consisting of a junior secured term loan credit facility in the aggregate principal amount of $15,600,000 (the “Junior DIP Facility”) which shall include a $4,100,000 sublimit for the issuance of letters of credit pursuant to that certain Superpriority Junior Debtor-in-Possession Secured Promissory Note, 1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: Lucky Brand Dungarees, LLC (3823), LBD Parent Holdings, LLC (4563), Lucky Brand Dungarees Stores, LLC (7295), Lucky PR, LLC (9578), and LBD Intermediate Holdings, LLC (7702).
    [Show full text]
  • "Multiple Lender Construction Loans: a Focus On
    WWW.ALSTON.COM Real Estate Finance & Investment n SPRING 2019 Multiple Lender Construction Loans: A Focus on Construction Loan Financing with a Mortgage and Mezzanine Loan Component By Ellen M. Goodwin I. Mortgage and Mezzanine Lenders Jointly Originating a Construction Loan – Recent Developments A. The Rise of Mezzanine Finance in Construction Lending After the 2008-2009 credit crisis, funds for construction loans were generally unavailable, which spurred a need for new players in the capital stack. High yield lenders emerged in the mezzanine finance position about eight years ago in order to fill this lending gap and reap the benefits of the higher interest rates on the construction loans. These non-bank lenders have been even more present in the mezzanine construction space over the past four years, helping to meet the needs of the construction boom that has occurred in many of the major U.S. cities, because they are not subject to the bank regulatory requirements imposed by Dodd Frank, such as the High Volatility Commercial Real Estate rule within Basel III (“HVCRE”) that implements higher capital requirements for bank originated acquisition, development and construction loans. As a result of not being subject to rules like HVCRE, the cost of capital in the context of pre-development, development and construction lending is cheaper for these non-bank lenders. The emergence of the construction mezzanine loan market has helped increase the leverage on construction projects. A syndicate of traditional mortgage lenders (i.e., a bank club group) will lend 50-65% based on an “as stabilized” loan-to-value ratio, while a total capital lending stack which includes both a mortgage and mezzanine component may increase leverage on a construction project as high as an 80% “as stabilized” loan-to-value ratio.
    [Show full text]