Debt buy-backs
Debt buy-backs

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Debt buy-backs
  • What is a debt buy-back?
  • Borrower purchases its own debt
  • Sponsor affiliate purchases the borrower's debt
  • What issues can arise on a debt buy-back?
  • Lender voting rights
  • Conflicts of interest
  • Status of the loan
  • Source of funds for the debt buy-back
  • Tax issues in debt buy-backs
  • More...

The ability of borrowers, members of the borrower group or the sponsor (or affiliates of the sponsor) to buy back loans became a live issue when the onset of the financial crisis in 2007 led to debt from leveraged finance deals being traded at sub-par levels. Such sub-par trading was not necessarily caused by any problems with the borrower, but was a result of the fact that the lack of market liquidity was forcing many lenders to sell loans held on their books in conditions which were not ideal for trading.

Debt buy-backs are once again in the spotlight as a result of the coronavirus (COVID-19) crisis.

This Practice Note discusses what is meant by a debt buy-back before moving on to issues that can arise on debt buy-backs and how the Loan Market Association (LMA) deals with debt buy-backs in its standard form documentation.

Debt buy-backs can be of loans or bonds. This Practice Note discusses the buy-back of loans only. For information on the buy-back of bonds, see Article: Debt buy-backs and the weakening of bondholder protection (2020) 5 JIBFL 310.

What is a debt buy-back?

Debt buy-backs in a lending context typically refer to the purchase of debt in the secondary market by a sponsor (or an affiliate of the sponsor) in a leveraged credit controlled by the sponsor. They can also refer to the purchase

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