Trends in Unrestricted Subsidiary Provisions: Q1 2023 Update

Unrestricted subsidiaries typically are designated by the borrower and excluded as subsidiaries for purposes of covenant compliance in the credit agreement. Unrestricted subsidiary provisions have become a very common feature in leverage lending, finding their way from the high-yield bond market into the market for syndicated credit facilities to provide greater operational flexibility to the borrower. While such provisions give the borrower more flexibility, they present a higher level of risk to lenders. Credit agreements will attempt to minimize the additional risk to lenders through, for example, restrictions and limitations on permitted dealings with the borrower and other restricted subsidiaries and holding intellectual property material to the borrower or any restricted subsidiary.

Click here to access a Market Standards search of unrestricted subsidiary provisions in credit agreements over the last year.

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Related Content

• Unrestricted Subsidiaries and EBITDA Add-Backs (Commitment Letters)
  Read this practice note to understand the use of unrestricted subsidiary provisions in loan documentation, including how issues related to unrestricted subsidiaries that arise in the context of a commitment letter may typically be addressed.

• Credit Agreement Resource Kit
  Access the resources you need to know about credit agreements. This resource kits includes Practical Guidance materials on drafting and negotiating credit agreements and different sources of debt financing, including detailed practice notes, templates, and checklists.

• Negative Covenants in Credit Agreements
  Review this practice describing negative covenants and the related definitions, which are among the most heavily negotiated provisions in a credit agreement.

• Affirmative Covenants in Credit Agreements
  Take a look at this practice note discussing affirmative covenants, which require a borrower to act in order to remain in compliance with the credit agreement.

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