Credit Documentation

With the sensitivity/scrutiny around credit docs in the public and private markets, does anyone have recommendations, outside of experience, on how to become better versed with documentation? Haven't been able to find any recent, relevant, guides or books...

Comments (8)

Jan 31, 2019

Interested as well..

Feb 3, 2019

Best guides are from lawyers. Mayer Brown, Kirkland, etc. have HY primers. You can getting bond offering memos and reading through the description of notes from top to bottom to practice. Debtwire also does some podcast clips about hot button issues.

Most Helpful
Feb 3, 2019

LSTA has a book on this.
Depending on your role and experience, you can get a teach in with any corporate lawyer. Reality is most of the document is standard with most of the discussion around covenant definitions, add backs to EBITDA, required lenders percentages, EBITDA definitions, treatment of equity cures, etc. Which amount to a handful of pages in the credit agreement.

Mar 29, 2019

Thought I posted something here yesterday, but I think the inclusion of a link in my first post didn't allow it to go up. So will try again. This has been something I have been working on myself and it has been challenging/time consuming.

If you have access to Reorg/Xtract they will post one pagers/tear sheets with key term summaries from credit docs you might be looking at. These sites also publish pieces on topical issues or any recent trends in credit docs, which can be another great resource for keeping your eyes open for certain things.

One thing I have been doing is going through a credit doc on my own and then comparing my notes to what is on the Reorg/Xtract one pagers. It is time consuming and a PIA but it has been helpful. Moody's also has a covenant quality review for issuers but those will likely be more limited.

Making sense of all it is an entirely different thing. Someone mentioned the LSTA Complete Credit Agreement Guide that can be purchased on Amazon which I found to be very helpful. As someone who has read through most of the HY primers mentioned previously, I thought this was a great additional source to have (a quick google search of "find file pdf high yield primer" will get you to those Mayer Brown, Milbank and Kirkland primers). The book walks through why things are in the credit agreement from both the lender's and borrower's perspectives and includes some boiler plate language.

Lastly, I have been trying to utilize "covenant surveys". There is a powerpoint pdf that you can search for - Joshua nahas credit analysis primer - and in the back (pg. 43) there will be examples of this. Basically it is a good way to organize key terms for certain securities by covenant (Restricted payments, permitted debt and liens, etc). Ideally you could set it up to compare securities from a single issuer or among several issuers. Hope that helps. Would also be curious to hear from others.

    • 2
Mar 29, 2019

Very helpful - thanks.

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Mar 29, 2019

Good post, most should find the primer you referenced very helpful.

One thing I'll add is that its one thing to understand the covenants and corporate structure of the issuer, but another skill to think about how the Company can creatively utilize their docs to get different things done.

Sometimes you find a creative way to solve a problem for creditors, other times you find a creative way to screw over creditors. The market has gotten very wise to things like the J Crew trap door (Surgery Partners just amended the CA for their new issue b/c someone pointed out this language existed, and Apollo had to amend the text of the CA for their LPNT LBO for other reasons as well), but many other ways to utilize (weaponize?)) the docs still exist.

A very useful exercise is to think about all the problems with the capital structure a company might have and how you would go about solving different things as permitted by the docs as if you were the CFO and not a creditor. Are the solutions most hurtful to creditors or equity owners?

When I think about it this way, the docs become much less of a boring legal read and more of an organic being that you can play around with...if that makes sense.

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Mar 29, 2019

Thanks for the great point and perspective. Much more interesting to approach this from trying to learn how to "weaponize" the docs rather than sorting out the legal mumbo jumbo for my own records. Occasionally I work with an internal distressed/opportunistic credit group and they view the docs as a framework for how companies might address problems they may face down the line - e.g. how to raise debt (or circumvent limiting covenants) to refinance upcoming maturities, etc. Definitely a much better way to go about it.

Apr 3, 2019