Shearman & Sterling LLP
Issue link: https://digital.shearman.com/i/1494420
Drop-Down Transactions – Overview Lenders provide structurally senior financing secured by assets outside the existing collateral package through the use of unrestricted subsidiaries or non-guarantor restricted subsidiaries 11 • Company forms/designates an unrestricted subsidiary or another non-guarantor subsidiary (such as a foreign subsidiary, joint venture or other excluded subsidiary) which is not required to guarantee existing loan/notes obligations ("NewCo"). • Company sells, contributes, or transfers assets to NewCo through a sale/contribution/transfer that is permitted under covenant baskets in the existing loan/indenture documents. • Such permitted transfers cause an automatic release of the liens of existing lenders on the transferred assets, i.e., the assets are removed from the existing collateral package. • NewCo incurs new debt financing that is secured by first-priority liens on the transferred assets. Such debt will be structurally senior to other existing debt of the borrower with respect to the assets securing such new debt. • As consideration for providing new debt, participating lenders may, in certain circumstances, also be permitted to exchange or roll-up all or a portion of their existing debt into a pari passu claim (secured with the newly incurred debt). Step 1: Formation/Designation of Subsidiary Step 2: Sale of Asset Step 3: Incurrence of Priority Debt Liability Management and Refinancing Solutions in Europe