Banks Divided Over Buybacks Of Portfolio Debt

Mon, 16 Jun 2008

A rift has erupted between UK-based banks and banking institutions in Europe over whether to allow private equity firms to buy back the debt on existing buyouts.

Some Scandinavian and German banks are reportedly adding clauses to contracts at the start of deals in an attempt to prevent the practice.

However a number of UK banks have contacted lawyers to ensure documentation on historic deals allows the process to take place.

Mark Campbell, head of finance at Clifford Chance, said the process "has been resisted by some banks and encouraged by others", depending on their decision to sell.

"It has never been an issue before. For many years borrowers had no commercial incentive to buy back debt as opposed to repaying early. Historic documentation ignores the subject."

"Now people know it can happen and is happening and the main concern for banks is a firm will just pay off one bank and ignore the others," he added. "If a loan borrower wants to repay banks early it has to do so equally."

Andrew Bamber, leveraged finance partner at Allen and Overy, commented: "Earlier on in the credit crunch, some banks had a policy of trying to block debt buybacks completely – preferring to force borrowers to repay at par."

"Some banks active in the market still resist putting clauses in to allow it in their deals, perhaps because they don’t want to anticipate their new deals trading sub-par. Some UK banks have lessened their opposition."

UK lenders are also believed to be waiting for the LMA to amend its primary facility agreements to provide options for borrowers and lenders to negotiate debt buy-backs on case-by-case scenario.
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