By Jacob Wolinsky. Originally published at ValueWalk.
In a new special report, Xtract Research reviews key features of the Revlon documents that warranted more attention from lenders.
Q4 2020 hedge fund letters, conferences and more
The Key Features Of The Revlon Documents
Highlights from the report include:
Include a Standalone Sale Leaseback Covenant
Just like in the much-maligned J. Crew transaction, after moving the IP assets to the Brandco Subsidiaries, Revlon licensed the IP back. Unlike J. Crew, the Revlon documents included a provision rarely seen in today’s market: a standalone Sale Leaseback covenant. Because sale leaseback transactions require, in the first instance, an asset transfer, they are covered under the Asset Sale covenant in modern documents.
Incremental Revolver Commitments Could Be Used to Procure Required Lender Consents
Structurally Senior Debt Can Arise from Debt Guaranteed by Non-Guarantors
One notable feature of the Brandco Transactions is that the priming debt was not incurred by the new Brandco Subsidiaries but guaranteed by them. This creates a priming effect as to the IP held by the Brandco Subsidiaries, while simultaneously diluting the collateral held by existing entities in the Revlon capital structure.
Overbroad Guarantee Exclusions Create Structurally Senior Debt Opportunities
One critical component of the Brandco transactions was the ability to create new subsidiaries that not required to guarantee the 2016 TLB. The typical guarantee requirement for US facilities excludes all foreign subsidiaries. Under many agreements on the market, including Revlon’s 2016 Credit Agreement, new domestic subsidiaries of foreign subsidiaries are also excluded. These exceptions paved the way for the Brandco Transactions. Aside from the foreign exception, most exceptions to typical US all assets guarantee requirements are necessarily limited. The exclusion for non-wholly owned subsidiaries is the only other notable exception that could potentially be used for a large amount of nonguarantor assets.
The post Four Lessons We Forgot To Learn From Revlon appeared first on ValueWalk.
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