Credit agreement trends show rise in portability and exchange protections

Recent trends in high-yield credit agreements show a rise in specific clauses that alter the traditional relationship between borrowers and lenders. In Q3 2024, 13% of publicly filed high-yield credit agreements included Change of Control Portability terms, an increase from 10% in Q3 2023. This growth is primarily driven by affiliate transfer portability, which allows a borrower to avoid a default event when ownership changes, effectively transferring the loan to a new owner without lender consent.

Additionally, the market is responding to controversial lending maneuvers through the introduction of Uptier Exchange protections. This follows a 2022 incident involving Wesco/Incora, where majority noteholders amended an indenture to issue themselves new priority notes, subsequently using their increased voting power to strip security from minority holders. While a bankruptcy judge invalidated that specific transaction in 2024, companies like Rackspace have since implemented Uptier Exchange protections in credit deals to block similar maneuvers.