"The UK and US legal markets are now divided on the issue as more loan buyback deals look set to hit the market.
'There have only been three publicly reported debt buybacks that we're aware of - TDC, Lafarge and Citadel in the US,' says Kirkland & Ellis banking partner Stephen Gillespie. 'However, there are many ways in which the economic substance of these transactions can be disguised, so it's possible there may have been many more.'
'The controversial issue is whether debt buybacks by borrowers somehow go against the spirit of syndicated lending,' admits Gillespie. 'The counterargument is that it's a free market and, provided the buyback is permitted under the loan documentation, there is nothing to stop a willing seller from selling its debt participation to a willing purchaser - and that purchaser can just as easily be the borrower, or an affiliate of the borrower, as anyone else.' "
This article appeared in its entirety in the April 15, 2008 edition of The Lawyer.