This week we continue our conversation with Daniel Winick, a partner in the banking and finance group of Clifford Chance US LLP, and Andrew Young, a senior associate in the same group. Their practice includes representing sponsors, corporates, lenders and participants in multijurisdictional leveraged and other finance transactions. Clifford Chance is a multinational law firm that is one of the ten largest globally. Second of two parts – View part one.
The Lead Left: From what we’ve seen, the issues surrounding incremental loans seem to be as much about MFN protections as anything else. What trends are you seeing in the market with respect to the MFN?
Daniel Winick: Borrowers continue to negotiate creative ways to maximize financing flexibility and minimize incremental loan costs and constraints.
MFN exceptions that are growing in popularity include ones based on (1) the specific incremental basket utilized (for example, no MFN if only the fixed basket is drawn), (2) a designated amount expressly excepted, or (3) application of the incremental loan for a specific purpose (for example, an investment or acquisition).
Others exceptions have included broadening of classic ones, namely, yield buffers and sunsets. Traditionally, MFN clauses required an increase in pricing to remain within 50 basis points of any incremental loans. In 2017, sponsors and strong borrowers have pushed for 75 basis points. These higher spreads have been common in Europe, but not so much in the U.S. Somewhat surprisingly, in most cases lenders have successfully rejected higher MFN spreads, although at least some have cleared.