Shearman & Sterling LLP
Issue link: https://digital.shearman.com/i/1494420
Drop-Down Transactions – Step 2 Sale/Transfer of Asset • Assets are transferred through exceptions in the below covenants combined with allowances for collateral release under the debt and collateral documents; several different baskets within the same covenant may be combined to achieve the desired capacity: • Investment covenant • Asset sale covenant • Sale leaseback covenant • Restricted payment covenant • Assets transferred are usually those that have a high value to the overall company and its operations relative to the actual fair-market-value of such assets. This allows for flexible valuations and ease of transfer to unrestricted subs. • Intellectual property is frequently used as part of a drop-down financing because it is intangible and fairly easy to transfer and, depending on the business (e.g. pharma and digital technology groups), can be extremely valuable: • Branding/Trademarks • IP in proprietary internal technology (e.g., operational software) Company sells/transfers or otherwise contributes specific assets that are permitted to be transferred under the existing debt documents. These assets will secure the priority debt. 15 Liability Management and Refinancing Solutions in Europe