Leveraged buy out meaning

This Practice Note offers high-level guidance on debt buy-backs within loan documentation. It first outlines what constitutes a debt buy-back, then considers the issues that may emerge, and sets out how the Loan Market Association (LMA) addresses buy-backs in its standard form documents. For fuller analysis, including structuring points, see Article: Structuring loan buybacks—(2021) 5 JIBFL 337. Buy-backs can relate to loans or bonds; however, this Practice Note addresses loan buy-backs only. For material on bond buy-backs, see Article: and the weakening of bondholder protection (2020) 5 JIBFL 310. What is a debt buy-back? In a lending context, a debt buy-back typically means the acquisition of existing debt in the secondary market by a sponsor (or a sponsor affiliate) or by a company within the borrower group in a sponsor-controlled leveraged credit...

Why are valuations necessary? Broadly, valuations for schemes of arrangement or Part 26A restructuring plans serve to contrast projections of (i) what creditors and shareholders recover within the scheme/plan against (ii) the business value and associated recoveries if no scheme/plan proceeded. The setting and method of sale can profoundly influence proceeds or value achieved on disposal. Because sale routes differ, the realised figure may vary markedly. When delivering a valuation, a valuer must adopt assumptions about how and in what circumstances an imagined sale would take place, including the route to market, timing and prevailing conditions. Accordingly, valuation exercises typically weigh the expected distributions under the proposed scheme or plan against the counterfactual position were the scheme or plan not implemented. For schemes or restructuring plans—often concerning financially stressed companies that may otherwise enter administration or liquidation—selecting the correct sales context or comparator is pivotal and, frequently, contentious...

What is second lien financing? Second lien financing describes funding that is principally backed by the same collateral package as senior or first‑ranking borrowings, yet it generally sits behind that senior or first‑ranking debt on a second‑ranking basis, whether in terms of payment priority and/or security (for more detail, see the Intercreditor position section below). It operates as a tranche of borrowing positioned between senior bank facilities and other junior or subordinated indebtedness within a leveraged buy‑out. Second lien borrowings are most often structured as term loans (or issued as notes in the US). The investor base for second lien instruments is typically institutional investors, encompassing funds that allocate to leveraged loans, collateralised loan obligations (CLOs), hedge funds, and other specialist debt funds...