Actionable Ideas for Companies and Sponsors

Regulatory Call Provisions Increase Optionality for High Yield Issuers

High yield issuers have been taking advantage of favorable conditions by accessing the bond market in order to increase liquidity and bolster balance sheets. The CARES Act, designed to provide direct economic assistance to protect against the economic impacts of COVID-19, can provide funding for businesses who qualify under the program’s requirements. As a response to the CARES Act, the high yield bond market has seen special redemption provisions introduced, allowing issuers to redeem a portion of newly issued bonds with future proceeds from the CARES Act or similar COVID-19 laws within 120 days of issuance. This provision allows issuers to take advantage of the current state of the debt markets by locking in long term capital from the public markets, while still preserving flexibility to access low cost government relief funds. Therefore, issuers looking to access the corporate debt markets due to liquidity needs should include regulatory call provisions with regards to proceeds received from the CARES Act or other similar laws. These call provisions give the issuer the optionality to access funding from multiple sources in order to lower the overall cost of funding liquidity needs while the company navigates the impact of COVID-19.