Shearman & Sterling LLP
Issue link: https://digital.shearman.com/i/1494417
Structural Subordination 11 Subordination based on the level in the corporate group structure at which the debt is issued 01 Liabilities of the Company's subsidiaries are superior to creditors' claims to the extent of the value of the assets of such subsidiaries • Can avoid structural subordination with upstream guarantees • Results in pari passu unsecured claim unless guarantees are secured 02 In a guaranteed deal, the liabilities of the non-guarantor subsidiaries will be structurally senior to the external debt 03 Unlike traditional loan covenants, there are no restrictions in High Yield covenants on transactions between guarantors/obligors and non-guarantors/non-obligors providing they fall within the covenants Company Non-Guarantor subsidiary Company Guarantor subsidiary External Debt Secured Claims Senior Unsecured Claims General Unsecured Claims Equity Secured Claims Senior Unsecured Claims General Unsecured Claims Equity Guarantee (secured or unsecured) The Debt Stack – Structuring and Incurrence Covenants