Transferring Assets to Raise Debt Capital Outside Existing Credit Agreement

Actionable Ideas for Companies and Sponsors

Transferring Assets to Raise Debt Capital Outside Existing Credit Agreement

Companies seeking near-term liquidity can explore using restricted payment and investment baskets in existing loan agreements to transfer assets into unrestricted subsidiaries to raise capital. The unrestricted subsidiary will have exclusive or priority liens on the transferred assets and the transferred assets should be assets that can be valued by the market, and can include intellectual property or unique business units.  The money raised at the unrestricted subsidiary is then reinvested in the parent company via an inter-company loan.

This structure allows the new debt investor to benefit from liens on the existing asset base in addition to the specific collateral transferred into the unrestricted subsidiary.  In addition to providing much needed liquidity to the existing company, this structure also avoids MFN provisions, enabling companies to preserve borrowing rates on their existing credit facility. Jefferies is currently discussing this structure with several companies across a wide range of industries and notably, we used this structure on the firm’s recent $850 million committed financing for Revlon.