DealLawyers.com Blog

Since 2018, John has addressed the debt default activism phenomenon on this blog and discussed related considerations, including contractual provisions designed to thwart default activists. Wachtell’s latest memo, “Private Equity in 2023,” discusses debt activism as a risk for acquirers seeking to maintain a target’s low-rate debt. Here’s an excerpt:

In last year’s memo, we discussed creative strategies that acquirers could use to keep low-rate debt of target companies in place following an acquisition. But just as a rising interest rate environment makes existing low-rate debt more valuable to borrowers, it also makes such debt more of a burden to lenders. 2023 resultantly saw a meaningful increase in “debt default activism”—previously discussed in our memos The Rise of the Net-Short Debt Activist, Default Activism in the Debt Market and Debt Default Activism: After Windstream, the Winds of Change—as debtholders deployed legal arguments and maneuvers to seek to force borrowers to refinance existing low-rate debt on new market-rate terms. 

In light of this trend, the memo makes this suggestion:

In the current sharp-elbowed financing markets, we encourage sponsors structuring corporate transactions that leave low-rate debt in place to build a record with defense in mind and carefully review not only obviously applicable provisions in debt documentation, but also those that might seem like insignificant “boilerplate.”

Programming Note: There will be no blog on Monday as our offices will be closed in observance of Martin Luther King day. We’ll return Tuesday.

– Meredith Ervine