Banking World at War Over Cheap Debt Buy-backs

"The lender community...argue[s] that loan buy-backs are prohibited under the terms of the Loan Market Association standard loan form. The sponsors and their advisers at US firms such as Kirkland & Ellis...claim they are valid.

Kirkland finance partner Stephen Gillespie said: 'These sorts of debt purchase are totally legitimate providing the provisions of the loan documentation permit the purchase and there are no adverse tax or regulatory consequences.

'It's about supply and demand. The lack of liquidity in the leveraged loans market has driven pricing down, even for perfectly good credits, and borrowers and sponsors have been considering whether it makes sense for them to use available cash to purchase debt at a discount to par, either to hold it for yield or to retire it.' "

This article appeared in its entirety in the April 7, 2008 edition of The Lawyer.