Debt Portability Provisions in Loan Agreements: Customary Conditions, Mechanics, Benefits, Risks, Market Trends

This CLE webinar will discuss the recent rise in the use of debt portability provisions in syndicated and private credit loans. The panelists will discuss the role of portability in debt financing agreements, the benefits of portability for deal parties, the customary portability conditions and terms, and key considerations when negotiating portability provisions to minimize risks.

In a market where refinancing remains expensive and often difficult to obtain, dealmakers on both the buy-side and sell-side are increasingly looking to take advantage of portable debt facilities to facilitate M&A transactions. Portability is an exception to the standard change of control requirements in that a debt can be "ported" and remain in place when company ownership changes if certain conditions are met. A company that has portability clauses available in its capital stack can be a more attractive target for a buyer that is looking to reduce costs and expenses and obtain financing under potentially more borrower-friendly terms.

Portability of a debt financing arrangement is usually only available within a strict timeframe after closing and is often limited to one-time use during the life cycle of the credit facility. The portability of a loan is also typically subject to a pro forma leverage test to ensure the debt is not ported in a downside scenario and usually a specified minimum equity condition must be met. Call protection would also typically be reset once the debt has been ported, and a porting fee is often required when the portability option is exercised.

Portable debt facilities can reduce uncertainty in a deal and offer benefits for buyers, sponsors, and lenders. However, stakeholders must also understand the risks involved with portable debt structures when negotiating these loan terms to minimize risk factors that can occur between closing on the debt and closing on the deal.

Listen as our authoritative panel discusses the role and benefits of portability provisions in debt financing agreements and provides guidance on negotiating and structuring these terms to minimize risks.