Actionable Ideas for Companies and Sponsors
Using Up-Tier Exchanges To Address Near Term Maturities
An up-tier exchange can provide several potential benefits to the issuer, including addressing near term maturities, improving leverage, reducing cash interest expense, and relaxing covenants. It can also provide more runway and potentially enhance liquidity by requiring exchange participants to also provide new money. The most common type of up-tier exchange is when a company offers to exchange unsecured bonds for a lower principal amount of secured bonds that are either pari-passu with, or subordinated to, the company’s existing secured debt. Therefore companies should examine if they can take advantage of flexibility in their credit agreements and indentures to structure up-tier exchanges accompanied with a new money investment. The up-tier exchange can be executed on an expedited basis and can be exempt from registration requirements.