Feature

The rise of NAV financings: is an equity contribution really “equity”?

Leveraged buyouts have traditionally been funded principally by debt secured against the collateral of the asset being acquired (typically borrowed by the acquisition special purpose vehicle, onward lent, and secured against the underlying collateral), combined with a sponsor equity commitment. To this, debt and equity commitment letters are commonplace within acquisition processes, and there is a clear expectation – both from sellers, and the acquisition financing provider – that the sponsor is committing true equity into the structure. However, as rising costs of capital have made investment returns more challenging, sponsors have looked to more creative ways to assist in levering their equity contribution, including by way of the incurrence of NAV financings. NAV financings used in this manner can mask the underlying nature of the equity commitment and, in a downside scenario, potentially lead to significantly more complex, and uncertain, workouts.

Floating charges again

Far too much ink has been spilled attempting to distinguish between fixed and floating charges, so I will keep this brief. It was prompted by reading Sarah Worthington’s article in this journal last year (‘Fixed and floating charges: still favouring absolutism over multi-factored nuance’ (2023) 9 JIBFL 583). My purpose is twofold: to argue that distinguishing between fixed and floating charges is both conceptually impossible and commercially pointless; and then to suggest how the law might be reformed.

Country risk in unprecedented times: a precedent for cross-border loan documentation?

While country risk cannot be avoided in cross-border transactions entirely, it can be effectively mitigated through careful transaction structuring and tailored contractual protections. Market standard loan agreements will include a number of exit rights and cost recovery provisions which may be helpful to a lender exposed to country risk and can be negotiated to meet the needs of the particular transaction. It is important to strike a balance between the effective management of country risk for lenders, and a contractual framework that provides the borrower with the required economics and flexibility to operate with certainty.

The FSB’s Consultation on Liquidity Preparedness for Margin and Collateral Calls: is it all about liquidity?

The FSB consultation report on Liquidity Preparedness for Margin and Collateral Calls (https://www.fsb.org/2024/04/liquidity-preparedness-for-margin-and-collateral-calls-consultation-report/), responded to a number of high-profile loss-making transactions by various banks involved in lending against collateral comprised of large positions in single listed stocks. Recently, the most talked-about debacle was that of  Archegos Capital Management (Archegos), the family office of Bill Hwang with total assets reported at around $36bn. In a nutshell, the prices of several stock positions held by Archegos dropped  for different reasons and it could not post enough cash collateral, so some of the lending banks had to liquidatethe collateral shares. Some banks managed to exit their positions quickly, but other chose not to, and suffered substantial losses. 

This article provides a detailed overview of the issues involved in such large transactions and highlights the key procedural requirements and potential regulatory developments needed. 

Russia’s quest for financial independence through the use of digital assets, cryptocurrencies and digital currencies

The Russian Central Bank and its regulatory bodies, which were historically against all things crypto, took a co-ordinated U-turn shortly after Russia's invasion of Ukraine in Feburary 2022 and the imposition of unprecedented sanctions by the West - because they realised that cryptocurrencies and digital assets can be used the evade sanctions. Having been subject to widespread sanctions for over two years and effectively cut off from the international payment system (SWIFT), and largely shut out of Western's bank and bank accounts, Russia is trying to adjust the "new order" and its international isolation - both economically and financially. It is finding new ways to receive monies from the West for its raw materials and to trade independently of Westen banks  and the US dollar, so that it can transact with both friendly and not so friendly countries on the premise that West cannot  trace those transactions.

Assignment or charge over warranty and indemnity insurance policies as security?

This article considers a difficulty which may arise for buyers in M&A transactions when lenders take security over warranty and indemnity insurance policies by way of assignment of the right to be paid the proceeds of a future claim. This article suggests a better option for buyers would be to take a charge over the contractual right to be paid, rather than by receiving an assignment of the right to, the proceeds of the policy.

Tacking: what further advances since 2002?

In this article, the authors consider issues of interest to the syndicated loan market in the context of the “tacking of further advances” to existing lending secured by registered land, or mortgages of registered land, in light of s 49 of the Land Registration Act 2002, developments in jurisprudence on the topic, and the work of the Law Commission. The authors are indebted to Mr Trevor Moore, for his article in this journal entitled ‘Real Estate as Security following The Land Registration Act 2002’ (2004) 2 JIBFL 56, upon which this work builds. This work assesses developments since that date and addresses problems arising in the modern loan market where; syndicate lenders make further advances directly to the borrower under ancillary facilities/RCFs; where loan agreements state that the obligation to make a further advance does not apply for so long as there is an un-remedied breach of covenant; how the concept of the “agreed maximum amount” operates under facilities where there are incremental loans and up-tiering transactions; and how the absence of a robust intercreditor agreement with a subsequent chargee can expose the “senior” lenders to US-style “lender-on-lender” violence.

Anti-suit relief: Bourlakova and Magomedov and the non-contractual jurisdiction

The recent line of authority preceding Bourlakova ¹ and Magomedov²  had largely centred on the contractual jurisdiction for granting an anti-suit injunction (ASI) to restrain or prevent the commencement of foreign proceedings. However, the cases of Bourlakova  and Magomedov  respectively considered the non-contractual jurisdictions for granting ASI relief and anti-anti suit injunctive (AASI) relief. This article will examine the contractual and the non-contractual bases for the grant of ASI and AASI relief, before considering the Bourlakova  case and the court’s approach to single forum disputes, as well as the Magomedov   case and the court’s willingness to protect judicial process in England and Wales.

Mandatory collateralisation of hedging transactions under senior secured facilities

This article considers the implications of mandatory collateralisation being applied to hedging transactions under senior secured facilities.

Financial sanctions and investment treaty arbitration

Financial institutions may be the subject of sanctions unilaterally imposed by individual states. While sanctions can be challenged through domestic means, foreign investors affected by sanctions have the right to bring proceedings against the sanction-imposing host state before international arbitral tribunals, provided investment treaty protection exists. Final awards, in particular monetary remedies against the host state, can be enforced globally.