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Clarity versus confusion in leveraged finance: Part 1
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Drawing on the author’s empirical research, this two-part article zooms in on the significant ambiguity in the language of European leveraged finance contracts, which generates confusion for the parties as to the meaning of key terms. This type of ambiguity also has negative implications for markets. Examples considered in Part 1 of this article include the “J. Crew trap door”, ambiguous permitted indebtedness covenants, and spurious and uncertain add backs to financial covenants. Part 2, to be published next month, explores the role that leveraged finance lawyers working in large international law firms in London played as engineers of this ambiguity.
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