• We analyze anti-liability management transaction provisions that appeared in two European high yield bonds and compare them with two seen in the U.S. market.

• While the anti-LMT provisions in this report all appeared in the restructuring context, they highlight override language that could be used to reduce liability management risk in new issue bonds.

• Anti-LMT provisions restrict the issuer’s opportunities to change the ranking and credit support for existing debt, or to uptier existing debt into new instruments that are contractually senior, effectively senior (whether due to lien priority, recourse to additional assets, or through double dip or pariplus structure), temporally senior or structurally senior.

• Compared with narrowly drawn J. Crew blockers, Serta blockers, and Chewy blockers, anti-LMT provisions restrict a spectrum of liability management transactions, but so far have not aimed to block LMTs entirely.

• In the real world where liability management serves a necessary purpose, anti-LMT provisions are about developing norms for implementing out-of-court LMTs that balance competing interests, give reasonably predictable outcomes, preserve value, and can become generally accepted in the market.

Overview

As we enter the new year, practitioners remain keenly focused on the risk of aggressive liability management transactions (“LMTs”), meaning that covenant techniques to reduce LMT risk are of broad interest to market participants. In this report, we highlight anti-liability management (“Anti-LMT”) provisions seen in two European high yield bonds that went through restructurings in 2024, and compare them with two more seen in the U.S. market.