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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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