Linklaters has scored two deals on groundbreaking covenant-lite transactions in Europe.
The firm is advising underwriters and arrangers JPMorgan for private equity firm Apax Partners’ proposed acquisition of a 49.9 per cent stake in Trader Media Investments from Guardian Media Group.
Covenant-lite refers to transactions that do not include the traditional financial covenants, typical of this kind of loan.
Banking partner at Linklaters Gideon Moore, who led the team, said: “We’re starting to see more of this type of transaction in Europe. This approach has been used in the US for some time. It’s developed here because there is a lot of liquidity in the market. There are not many assets, but lots of cash chasing those assets.”
The deal comes after Linklaters worked on the covenant-lite refinancing of World Directories’ senior facilities after its buy-out in 2004.
The US market has featured deals described as lite, super-lite and ultra-lite depending on how few traditional maintenance based financial covenants are included.
There has been speculation as to whether we can expect to see the same in Europe and that the emergence of covenant-lite loans is a sign of the market over-heating.
Moore said: “I think it is a little simplistic to say that covenant-lite in Europe is a sign that the market is over-heating because there are many other aspects that would contribute to this. You have to consider underlying performance and economic conditions.”