The Covenant Analysis in Stressed & Distressed Scenarios course starts from the opposite end to most distressed training. Instead of working through how Serta or J. Crew was done, it teaches the analysis that puts you in the position of the people who structured those deals, to apply to your own credits.
The course opens with why the documents permit any of this. Restructuring lawyers asked capital markets lawyers for the provisions that make the next transaction easier, so covenants are now drafted with liability management in mind. Maintenance covenants have largely gone from loans, so the trigger is usually liquidity, and US courts hold sophisticated parties to the plain words of the contract.
Participants then work through the questions the analysis has to answer. Can your debt be primed? Can collateral be diluted, or residual value impaired? Can a sponsor extract value while the borrower is stressed? Can votes be rigged? Answering them is a tour through asset sales, debt and liens, restricted payments, Unrestricted Subsidiaries, amendment and buyback provisions.
The mechanics are covered: the four kinds of subordination, non-guarantor debt incurrence and where that capacity hides, automatic collateral release, permitted collateral liens for super senior capacity and hollow tranches, up-tiering, and the four steps of a dropdown. It also covers the defensive blockers, and why protections outside the contract should not be relied on.
The course closes with a working checklist, and by the end participants can run that checklist on their own credits, and will understand why who holds the debt often decides the outcome as much as the drafting does.
