Overview

The bonds backing Kelvion’s LBO contain a loan-style “Snooze / Drag” provision (typically seen in an A&Erequest in certain European leveraged loans), which lets the Company deem consent or disenfranchise non-responding lenders for any consent, amendment, waiver, or exchange offer. We are alerting bond investors to this development, given the threat it poses to seriously undermine voting rights in European high yield bonds.

The reality is that any precedent once set can be very hard to undo once the line is crossed, and what clears in today’s deal become precedent for tomorrow.

Backing the Apollo / Triton LBO, King Holdco Limited (the “Company”) is marketing €750 million of Senior Secured Floating Rate Notes due 2032 (the “Notes”), and our full First Look report is available here.

Snooze / Drag provisions developed as a post-COVID era “innovation” designed to accommodate certain CLO investors with hands tied by restrictive CLO indentures, unable to actively consent but willing to tacitly roll into maturity extensions.

As detailed in a report by our leveraged loan colleagues, this deemed consent mechanic has appeared in several iterations in European leveraged loans, making the need to respond to consent requests mission critical.

The mechanic also hasn’t been limited to maturity extensions only, nor only to CLO investors facing the particular issue, but also applies to other consent matters and lenders generally, and has included deemed consent for non-responding lenders or the disenfranchisement of commitments of non-responding lenders when determining whether requisite consents have been achieved.

CLO documentation has arguably also moved on since the Snooze / Drag began appearing in loans, with changes to facilitate participation in priming debt and asset priming transactions perhaps relieving some of of the (non)-voting pressures previously experienced, as discussed in our report here. The provisions aren’t liked by some loan investors, and we track them in our reports, as
they raise the risk of disenfranchisement or worse, being actively dragged into an extended or otherwise altered investment without consent.