The Latest Liability Management Technology: Structurally Senior Minority-Owned Joint Venture Financings

Last month, a publicly traded company (the "Company") announced the formation and capitalization of a new joint venture (the "JV") in a deal-away transaction (i.e., not with the Company's existing lender group). The JV raised new capital – comprised of senior secured term loans and preferred equity – from a lender group unaffiliated with the Company's existing lenders. The net proceeds were distributed to the Company.

This structure combines, among other complexities, (i) a drop-down of material intellectual property to a non-subsidiary joint venture, resulting in structural priming of existing secured creditors; and (ii) the reported use of so-called "rinse-and-repeat" investment capacity to maximize negative covenant basket capacity. We will discuss these and an oft-overlooked interpretive provision impacting transactions such as this, and close with a few thoughts about liability management in debt markets today.