Loans vs. Bonds: Examining the Nuances of Affected Creditor Serta Protection in Recent Secured Financings
Anthony P. Canale, J.D. Global Head of Research, Covenant Review
23 October 2025
Insights into affected creditor Serta protection, including:
- Structural Differences Between Loans and Bonds: Discover how Affected Creditor Serta Protection varies significantly between leveraged loan credit agreements and high yield indentures in 52 recent secured financings from July 2023 through November 2024.
- Payment Subordination Consent Requirements: Learn that 59.6% of credit agreements require affected lender consent for payment subordination, but 71% contain multiple exceptions, while 53.8% of bonds require consent with 82.1% having no exceptions.
- Lien Subordination Protection Analysis: Understand how Affected Creditor Serta Protection for lien subordination differs—59.6% of loans require consent (mostly with exceptions) versus only 17.3% of bonds, though over 71% of bonds require supermajority consent instead.
- Exception Provisions and Loopholes: Explore the critical nuances of pro rata participation opportunities, DIP facility exceptions, and other negotiated carve-outs that could enable liability management exercises despite affected creditor protections.
- Asset Class Comparison Insights: Gauge which asset class provides tighter creditor protection—the answer depends on whether you prioritize the presence of affected creditor consent provisions or the absence of exceptions to those provisions.
Executive Summary
- In a recent Loans vs. Bonds report, we compared how Serta Protection in recent leveraged loans compares against the corresponding provisions of parity lien bonds issued as part of the same financing transaction in the U.S.
- Based on additional subscriber questions, we take a closer look at the nuances of affected creditor Serta Protection in recent secured financings.
- The ultimate answer to the question of “which asset class is tighter on providing affected creditor Serta protection” is unclear, and depends on whether one is assessing the presence of affected creditor Serta protection (including provisions containing exceptions) or assessing the presence of affected creditor Serta protection containing no exceptions.
- A greater percentage of credit agreements require affected lender consent to payment subordinate or lien subordinate than is the case for high yield bonds, but the vast majority of these credit agreements allow for significant exceptions that could potentially be used to structure liability management exercises.
- Of the 52 financings we reviewed, nearly 60% of the credit agreements required affected lender consent to modify payment subordination and lien subordination, but the vast majority of these deals contain one or more exceptions to this Serta protection.
- Of the 52 financings we reviewed, nearly 54% of the high yield bonds required affected holder consent to modify payment subordination, and the vast majority of these deals contain no exceptions to this Serta protection.
- Only 17.3% of high yield bonds required affected holder consent to lien subordinate, but a majority of these deals contain no exceptions to this Serta protection.
- Finally, in over 71% of the high yield instruments we reviewed, supermajority consent (typically 66 2/3%) is required to effect lien subordination, but with no exceptions to the general rule.
