Amendments and consent in 2020

The events of 2020 hammered revenue in a clutch of corporate sectors. The US private placement (USPP) market, with its traditionally strong covenant structure, saw significant flow of requests for amendments as a result. Market users say the market was able to respond quickly and sympathetically with its typically long-term eye.

DAVISON Last year was a very busy one for issuers renegotiating debt facilities, especially with bank lenders, to secure liquidity in the face of economic shutdowns. USPP is the most ‘bank-like’ debt capital market – so how significant was the flow of covenant waiver requests especially from March into the second quarter? How receptive to renegotiation requests was the USPP investor base?

BROOKS MUFG represented several of its Australasia-based clients during this period, helping them through the USPP amendment process. These processes generally went smoothly, with investors acting in good faith and understanding that COVID-19-related credit implications were out of issuers’ control.

Looking back through April, May and June, we saw a significant number of amendment and waiver processes come through the market. This corresponded with a slowdown of issuance as investors worked through their credit-committee processes. While the process was time-consuming for investors, it was comparable to what was happening in the bank market.

JONES It was definitely time-consuming. But I think one of the benefits of the USPP market is the relatively small universe of investors. Having a group of investors an issuer can stay in close contact with can drive the amendment process. I think this is critical and helpful for achieving outcomes in a timely manner and in a way that suits the issuer.

There was a significant uptick in the level of activity during 2020 but I think this is something the USPP market was prepared for given its experience through prior cycles. It is a two-way street. Issuers come to our market because we are long-term relationship-oriented investors and we have an understanding of their businesses. As a group, we recognise that these are the types of opportunities for which we have to step up and demonstrate our support.

DAVISON Was it reasonably easy to achieve unanimity across investor groups? Did it feel like the market was at consensus on appropriate courses of action?

JONES There are many institutions and of course some of them have different views and motivations. It takes some time – and this is why we sometimes have a steering committee to help guide and figure out the best solution that balances the needs of investors and issuers.

Issuers come to our market because we are long-term relationship-oriented investors and we have an understanding of their businesses. As a group, we recognise that these are the types of opportunities for which we have to step up and demonstrate our support.

MICHAEL JONES PRICOA PRIVATE CAPITAL

DAVISON How did investors draw the line between giving issuers the liquidity support they needed in the near term and giving up the covenant protections investors have worked hard over many years to secure?

SPAETH We tried to get ahead of this by being proactive. We identified companies and sectors that might experience dislocation. I went through a number of these and, by and large, although not all investors agreed they were very constructive.

In my opinion, we did not experience a whittling down of our protections. I do not think we gave away anything – because this was a temporary event. The goal was to give issuers a runway where they could get through this period without being affected by things that might not be necessary, or in the best interest of running their day-to-day operations, which is at the end of the day what is best for them and for us.

Certainly from my experience, every single company that approached us for some type of a waiver broadcast it ahead of time and modifications to the original ask were generally offered up to make investors happy through the process. By and large, it was a positive experience. I do not think we gave up anything over the longer term – and I do not think we were being asked to.

DAVISON How significant was the need across the Australasian borrower complex to go into amendment processes – and how challenging was it to get the right outcomes?

CARR From the visibility we had across corporate Australasia, it was not a widespread requirement. It was quite focused on certain sectors, and even then only certain issuers within those sectors. My observation of the process is similar to what the investors have outlined – it was entirely pragmatic, to put it succinctly.

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