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When a company is recapitalized in a PE buy the existing lenders need to either be paid back in full or explicitly approve of having their debt rolled over into

When a company is recapitalized in a PE buy the existing lenders need to either be paid back in full or explicitly approve of having their debt rolled over into the new structure. They can't be forced.

zzleeper 7y ago
You don't need to change the structure. Change management, new management raises all the new debt. Unless there is a bullet proof leverage covenant, then the existing lenders can't do zip about that. Thus, their only option is to go to the table and "accept" the new structure.
- travisoneill1 7y ago
  This is not a leverage covenant. This is a change in control provision, which there always is for any type of senior debt.
- valuearb 7y ago
  You are exactly like the author. You don't understand enough to make the conclusions you make. Lenders aren't stupid in general. They have covenants to protect themselves. In the case of Basecamp, which likely has almost zero physical assets, any loan is going to be very contingent on protecting the levels of profitability necessary to repay it. Whoever owns Basecamp won't be able to get a credit card in it's name without lender approval. Source: I spent the last year working for a firm that is funded by venture capital loans. Every other loan & credit line had to be made subordinate to theirs, and we could not borrow anything new without their approval. It wouldn't matter who we sold the business to, they'd have to agree to the same restrictions or no sale.
LatteLazy 7y ago
Is that true of creditors? I didnt think creditors had a right to object to a change in ownership...
- valuearb 7y ago
  It depends upon the loan and it's negotiated. If you start a chain of ice cream parlors and borrow millions to buy and build your stores, likely that loan is secured only by the store properties themselves. If it's a general business loan with no physical assets to secure it, you can bet your bippy they'll demand covenants restricting how much other debt you can have and that those covenants survive change of control.

zzleeper 7y ago

You don't need to change the structure. Change management, new management raises all the new debt. Unless there is a bullet proof leverage covenant, then the existing lenders can't do zip about that. Thus, their only option is to go to the table and "accept" the new structure.

travisoneill1 7y ago
This is not a leverage covenant. This is a change in control provision, which there always is for any type of senior debt.
valuearb 7y ago
You are exactly like the author. You don't understand enough to make the conclusions you make. Lenders aren't stupid in general. They have covenants to protect themselves. In the case of Basecamp, which likely has almost zero physical assets, any loan is going to be very contingent on protecting the levels of profitability necessary to repay it. Whoever owns Basecamp won't be able to get a credit card in it's name without lender approval. Source: I spent the last year working for a firm that is funded by venture capital loans. Every other loan & credit line had to be made subordinate to theirs, and we could not borrow anything new without their approval. It wouldn't matter who we sold the business to, they'd have to agree to the same restrictions or no sale.

LatteLazy 7y ago

Is that true of creditors? I didnt think creditors had a right to object to a change in ownership...

valuearb 7y ago
It depends upon the loan and it's negotiated. If you start a chain of ice cream parlors and borrow millions to buy and build your stores, likely that loan is secured only by the store properties themselves. If it's a general business loan with no physical assets to secure it, you can bet your bippy they'll demand covenants restricting how much other debt you can have and that those covenants survive change of control.