Links' LBO team rides trend with dual JP Morgan mandate

Linklaters' acquisition finance team has scored a high-profile mandate after advising on two so-called 'covenant-lite' financings for JP Morgan.

The firm, fielding a team under finance partner Gideon Moore, advised JP Morgan as arranger and debt provider for Apax on its acquisition of a 49.9% stake in Trader Media Investments from the Guardian Media Group for £1.35bn.

The deal follows a similar transaction for JP Morgan, in which Linklaters advised on the refinancing of the senior debt of VNU World Directories, also owned by Apax and fellow buy-out house Cinven, on a covenant-lite basis.

The controversial lending structure sees the borrower severely limit its reporting requirement to lenders and also curbs the creditors' right to declare a default on the loans. Instead 'incurrence covenants' are agreed, which mean the borrower only has to reveal its financial performance in certain circumstances, such as if it wishes to borrow more money.

The financing trend, which has been pioneered in the US in response to the increasing power of private equity houses in negotiating finance terms, is being watched warily by City finance lawyers.

One acquisition finance partner with a top 10 City rival told Legal Week: "Banks are saying that they are not comfortable lending on the current terms and conditions but that they have no choice if they are to stay in the market."

Linklaters' Moore commented: "While incurrence covenants have been seen in senior debt deals in the US, until now they have been untested in European transactions. These deals are indicative of the evolution of the European debt markets and the convergence between bond and senior debt instruments."

Apax was advised by Allen & Overy private equity partner Derek Baird, who was recruited last year from Lovells to beef up the magic circle firm's buy-out presence.

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