NEW YORK: It’s the notification every lender fears: designation of an unrestricted subsidiary.
In plain English, it means that the company that you lent to has just shifted some assets backing your loan – very often among the most valuable assets – into a new unit that’s beyond your reach.
And it signals that, in due time, that company will look to strike a deal to borrow more money against those shifted assets from another group of lenders.
The manoeuvre, famously nicknamed the J. Crew after that retailer used it to get a much-needed lifeline, always has the same effect.
Lenders in the company’s older debt see the value of their loans depleted, with the price plunging deep into distressed levels.
Now, another company could be pulling a J. Crew, Bloomberg’s Reshmi Basu and Rachel Butt reported this week.
Instant Brands, maker of the Instant Pot and Pyrex kitchenware, told lenders in recent days that it started the process of moving one of its properties into a new entity, people familiar with the matter said.
The market value of the company’s roughly US$400mil (RM1.69bil) term loan due in 2028, which was already at distressed levels, dropped further.
And now a group of the lenders are huddling with law firm Ropes & Gray to assess their options. On Instant Brands’ part, it has taken steps to “ensure the business is well-capitalised to invest for the future”. — Bloomberg