Blocking majorities
Blocking majorities

The following Restructuring & Insolvency guidance note provides comprehensive and up to date legal information covering:

  • Blocking majorities
  • Coronavirus (COVID-19)
  • Initial steps
  • Majorities in syndicated loans
  • Majorities in European bonds
  • Majorities in US bonds
  • Practicalities
  • Company's rights to acquire the debt
  • 'Snooze and lose'
  • Disenfranchisement
  • more

It's important to consider the underlying finance documents to determine the requisite majorities of creditors which can block certain actions necessary to maintain an effective standstill, and to complete a successful restructuring (see Practice Notes: Key elements of a standstill agreement).

Initial steps

Increasingly companies have many different types of creditor, each with conflicting motives.

It's important to review the finance documents and any intercreditor agreements (see Practice Note: Intercreditor agreements for R&I lawyers) to determine for each tranche of debt:

  1. what majorities are required from each creditor constituency to waive any covenant breaches/events of default (common terms in a standstill agreement) or amend the finance documents

  2. the process for enforcement actions plus the role of any security trustee/collateral agent/facility agent

  3. whether there are any buy-out rights

A valuation (see Practice Note: Where the value breaks and negotiating strength) will identify creditors likely to exercise blocking rights; those close to where the value breaks will maximise any blocking rights they have to secure a better deal.

Majorities in syndicated loans

For loans provided by a group of lenders, a security trustee/collateral agent/facility agent is usually appointed (see Practice Note: The security agent and security trust provisions).

The Loan Market Association (LMA) has produced standard terms which many parties use as a starting point for drafting their documentation. Typically the following actions require