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Leveraged Finance Academy: Advanced Topics - 8 March 2023

Shearman & Sterling LLP

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Uptiering Transactions – Step 2: Debt Exchange Borrower conducts a non-pro rata debt exchange with or repurchase from participating lenders through open market purchases or a Dutch auction or by way of an Exchange Offer to existing noteholders, coupled with a consent solicitation. • Credit agreements may permit non-pro rata payment in the case of debt buybacks through "open market purchases" or "Dutch auctions." • These terms are frequently not defined. However, some credit agreements specify criteria (in the form of a list or a schedule of procedures) for "open market purchases" or "Dutch auctions." • For example, in Murray Energy, the existing credit agreement requires that "Dutch auctions" be offered to all lenders and sets forth auction procedures in an exhibit. • In recent high-profile uptiering transactions however, borrowers have taken advantage of these terms by: • Entering into bespoke transactions and labeling them as "open market purchases" or "Dutch auctions"; • Amending the definition of "open market purchases" to include the tailor-made "Open Market Purchase Agreements" between the borrower and participating lenders (e.g., Boardriders); • Amending the criteria of "Dutch auctions" to loosen the required procedures. • In bond world, coercive exchange offers are typically structured with a "carrot" (new bonds with better terms) and a "stick" (the exchange is coupled with an exit consent to remove restrictive covenants and other protections under the existing bonds). 28 Liability Management and Refinancing Solutions in Europe

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