Banking & Finance 2020

Last Updated October 05, 2020


Law and Practice


Winston & Strawn London LLP provides a wide range of legal services, through its corporate and finance practice, to public and private companies, leading financial institutions, multilateral and development finance institutions, private equity and investment funds, alternative funding sources, investors and emerging companies. The firm advises on high-profile transactions and matters from cross-border transactions, initial public offerings (IPOs) and project finance matters, to distressed acquisitions and creative “first-of-their-kind” financings. Clients include leading domestic and international funding sources that provide senior, subordinated, secured and unsecured debt and hybrid (equity/debt) products, as well as institutional investors who regularly participate in the senior debt markets, equity sponsors, and borrowers in both developed and emerging economies. The practice focuses on complex cross-border deals, assisting domestic and international commercial and investment banks, finance companies, multilateral and development finance institutions, public and private companies, private equity funds and portfolio companies, on investment grade, leveraged and mezzanine financings.

The United Kingdom will cease to be a member of the European Union (EU) on 31 January 2020, subject to a transition period agreed under the Withdrawal Agreement between the UK and EU. On 31 December 2020, EU law will cease to have effect in the UK. English contract law, which remains the choice of law for the majority of cross-border European deals, will not be significantly impacted by the departure. The parties to financing agreements will also retain the ability to choose English courts as having jurisdiction and to enforce English court judgments on those agreements in EU member states.

The competitive landscape for deals has certainly changed with on-going impact of COVID-19, threat of further lockdowns and, significantly, the repercussions of a broader economic downturn. Although businesses have raised unprecedented sums from public and private sources since the COVID-19 outbreak, new business activity may pause with processes and approvals taking longer as lenders temporarily shift focus towards their existing assets and clearing out their portfolios of non-performing businesses.

A number of corporates are expected to seek covenant waivers in Q1 2021. As a result, some of the restructurings resulting from payment defaults expected for Q4 2020 will be delayed until Q1 2021, when the market will see a further rise in distressed sales. Additionally, the uncertainty remains as to the place government funding occupies in the capital structure of a company.

At the time of writing, however, primary activity levels are improving and recent transactions in the large cap loan market demonstrate the willingness of credit investors to deploy capital to resilient businesses. Private equity activity has also made a come-back in Q3 2020, in particular in the technology, services and healthcare sectors, with increased interest in the financing and acquisition of healthcare businesses, med-tech and biotech, via unitranche loans (often with listing covenants) coupled with warrants issued to private debt funds.

COVID-19 has had a protracted impact on the UK loan market. The government issued a series of public support funding measures early in the UK COVID-19 crisis to help firms weather the disruption to their cash flows. These schemes are to conclude in December 2020. 

There are signs that banks are, in any event, capital constrained. Such an environment presents opportunities for private lenders and asset buyers. As the market reaction to COVID-19 leads to declining debt prices, many borrowers and their private equity sponsors may consider repurchasing debt, selling assets or refinancing with private lender capital. Debt funds have increased their cash reserves since the start of the crisis, primarily to invest in opportunities in alternative assets such as private debt and special situations.

The government’s temporary measures to delay insolvency processes are expected to come to an end in September 2020, bringing significant opportunities for funds with distressed debt and special situations capabilities to provide bridge financing with an attractive risk/return profile and some will engage in "loan-to-own" investing.

Following a period in March 2020 when the high-yield market was brought to a near halt due to COVID-19 concerns, in the following months the position reversed as borrowers sought to build up their balance sheets and cash reserves. The uptick was also driven by massive government support for capital markets and an appetite for fixed-rate products following interest rate cuts in both the USA and UK.

The alternative credit provider market is a mature market in the UK. There are debt funds covering loans of all sizes and, increasingly, a full suite of lending products, including specialist property finance, infrastructure lending, private placements (structured either as a privately placed bond or loan structure), asset-backed lending, receivable finance and leveraged loans.

Intense competition in the market and the ability of debt funds to fund the whole debt in all but the largest transactions means that bank lenders pitching a syndicated loan or originating a loan for distribution to CLO funds cannot demand the strong flex provisions they used to command.

Alongside this, peer-to-peer platforms are expanding into areas such as SME lending and receivables financing, often backed by cutting edge credit assessment technology rather than traditional underwriting, which reduces cost and increases efficiency, sometimes challenging the traditional bank approach.

COVID-19 has seen the use of more comprehensive term sheets, commitment letters and a full subordination of shareholder debt and loan note holders in intercreditor agreements. Where government-backed loans have been used, these are required to rank at least pari passu in the financing structure and therefore remain contractually and structurally unsubordinated, which has added significant documentation and negotiation complexity.

Although the market is a borrower one with sponsor friendly terms, lenders are being more cautious negotiating financial covenant definitions, such as the exceptional items. Lenders have also been seeking more control via short term information undertakings such as performance indicators. Further, there has been an increase in liquidity covenants with quarterly or even monthly testing.

Looking forward, sponsors will have to be more creative in their structuring of deals, including investing in preferred equity and requiring portability terms to allow for disposal of shares in companies. Sponsors will also likely explore innovative financing structures such as fund level net-asset-value (NAV) debt facilities to use leverage at the fund level to increase fire power and liquidity.

The regulation of non-bank lending, if it occurs, has the capacity to significantly affect the market. It is unlikely that regulators would wish to damage investments from this area and most European jurisdictions have been introducing rules to encourage non-bank lending. However, previously proposed regulations and regulations that can be seen worldwide (eg, universal lender licensing) could have a significant negative impact if introduced to the UK. There are initiatives designed to encourage SME lending and promote fairness in this section of the market, in a similar way to consumer protection.

Work is progressing on the transition to developing alternative measures of short-term bank funding costs which would reform and replace the survey-based LIBOR after 2021. The most likely risk-free reference rates include: SONIA for sterling, SOFR for US dollars, ESTER for euros, SARON for Swiss francs and TONAR for Japanese yen. The UK Loan Market Association (LMA), which works with the market, trade associations and the regulators on the transition, has published exposure drafts of compounded SONIA-based sterling term and revolving facilities agreement and a compounded SOFR-based dollar term and revolving facilities agreement, as well as fallback language which is being implemented in European deals for new loans which are still being documented referencing LIBOR.

Requirements and Procedures

In the UK, authorisation requirements vary by level and type of activity. While there are licence requirements for providers of consumer credit, wholesale lending activity is generally unregulated and, provided that the lender will not be accepting deposits or conducting investment business within the UK, will not require authorisation from the FCA and the Prudential Regulation Authority (PRA).

Regarding transactions involving bonds, securities, debentures and other instruments creating or acknowledging indebtedness, persons carrying out certain regulated activities in relation to these types of debt instruments must be authorised under the Financial Services and Markets Act 2000 (FSMA), unless they have an exemption. Similarly, persons intending to carry out regulated consumer credit activities will have to apply for authorisation.

Passporting Rights 

A credit institution or firm headquartered in the EEA which qualifies for authorisation will have permission to carry on each permitted activity in the UK which the credit institution or firm is authorised to carry on in its home state that is also a regulated activity under FSMA (known as "passporting"). Passporting rights for EEA firms will continue to apply to the UK for the duration of the transition period. Regulated businesses have taken steps to mitigate the loss of passporting rights into the EU thereafter.

There are no specific restrictions on foreign lenders' granting of loans to corporate borrowers. Restrictions apply to loans for individuals and mortgage lending.

There are no specific restrictions on the granting of security or guarantees to foreign lenders.

There are no exchange controls regarding foreign currency exchange.  However, it is advisable to consider whether non-English exchange control rules apply to a guarantee given by a non-UK company or rely on recourse to non-UK assets.

The UK is currently required to adhere to UN and EU sanctions, and has an autonomous terrorist sanctions regime. It is expected that the EU sanctions regime will cease to apply to the UK following the end of the transitional period, although in the case of a no-deal Brexit, the UK will look to carry over all EU sanctions at the time of its departure with the ability to autonomously regulate them.

While specific contractual assurances regarding sanctions compliance were traditionally required only from borrowers operating in sectors or countries perceived as being higher risk, lenders now require these provisions more routinely. In relation to anti-corruption laws, lenders’ proposals are often less wide-ranging than those relating to sanctions. 

Non-compliance with sanctions laws will customarily constitute an event of default under the facilities, or trigger automatic prepayment and cancellation of the loans, restricting the borrower’s use of proceeds and entitling the lender to accelerate the loan and take enforcement action against the borrower. In addition, changes to the sanctions definitions and provisions often require all lender consent. 

Both the agency and trust concepts are recognised under English law. The role of the agent is typically governed by the agency provisions in the loan documentation and the intercreditor or security documents. The agent is regarded as an agent, and the security trustee as trustee, of the syndicate members with fiduciary duty for the duration of the loan contract. 

In addition to dedicated departments within banks, there is now a significant number of independent providers in the market who offer agency and trustee services.

The transfer of loans to new parties is governed by the terms of the facility agreement. Trading of syndicated debt is common and active, with the most prevalent structures for trading debt being the following:

  • novation: novation is the most widely used form of transfer in the London market; 
  • assignment: it is possible and common to assign the lender’s rights, but this must be coupled with assumption of the lender’s obligations, eg, lending commitments; and
  • sub-participation and total return swap: these arrangements are primarily used to transfer commercial risk where restrictions prevent a direct transfer.

A transfer will, at a minimum, require the borrower to be consulted or notified, or trigger pre-emption or other rights for the other lenders in the syndicate. Transfer regimes have become more controversial as lenders in the European market try to reduce secondary market transfer settlement terms. Provisions requiring a borrower’s consent, or allowing transfers to lenders on a white list or during payment or insolvency-related events of default, are resisted. Further, transferability in relation to competitor restrictions and around loan to own and distressed investors has become a focus.

The buyer of the debt (but not a participant) will usually benefit from any English security following the transfer without compromising the priority of the security. Different considerations may apply to overseas security, especially in some European jurisdictions, and parallel debt provisions may be needed to mitigate these consequences.

Lenders and borrowers are free to agree contractual terms. LMA syndicated facility agreements include a choice between restricting or permitting debt buy-backs in certain circumstances and include optional provisions which disenfranchise a sponsor that becomes a lender. As well as restrictions on borrowers’ purchases, lenders are increasingly seeking an absolute restriction on sponsors or other shareholders acquiring a portion of the debt, which would allow them to block a scheme of arrangement of the debt even when they are disenfranchised.

Where debt buy-backs are not expressly regulated within a facility agreement, a borrower or sponsor seeking to buy back its own outstanding debt will need to consider whether there are any other restrictions in the loan documentation which could prohibit a transfer of debt to it.

The “certain funds” rules are contained in the City Code on Takeovers and Mergers (the "Takeover Code") and require that a bidder has sufficient means to fully finance any cash consideration, or implement any other type of consideration, offered for an acquisition of a public company before its offer is publicly announced. Financing conditions may not be invoked except in narrowly defined pre-conditional offers where a necessary material authorisation or regulatory clearance is required for the offer to proceed. 

The responsibility to comply with this requirement rests not only with the potential buyer but also with its financial adviser, who must provide in the offer document a confirmation (the “cash confirmation”) that the bidder has the necessary financial resources to consummate the offer. For this reason, the bid will usually not be launched without the financial adviser having received a representation letter from the bidder and a comfort letter from the lenders. The bidder will also be required to give a working capital statement.

If a new loan financing is required to fund the bid, the facility agreement (or a suitable interim facility) will need to be fully negotiated and executed prior to the offer announcement. Bidders seeking to acquire a public target with bid financing will require a certain funds bridge, usually provided by a bank.

Payments of interest with a UK source to a recipient outside the charge-to-UK corporation tax are generally subject to a UK withholding tax (current rate 20%). There are a number of circumstances under which application for an exemption from this requirement may be made, including interest paid to non-UK residents where authority is obtained from HM Revenue and Customs (HMRC) for the interest to be paid gross (or at a reduced rate) under the terms of a double-tax treaty or is paid under certain listed securities. HMRC operates a fast-track double-taxation treaty passport scheme for overseas corporate lenders which has recently been extended to certain transparent entities, sovereign wealth funds and pension funds (subject to various conditions).

Principal, discounts and premiums are not generally subject to UK deduction of tax.

Lenders with a permanent establishment in the UK are liable for corporation tax (current rate is 19%) on the income profits of that establishment and gains from the disposal of assets situated in the UK that are used in the trade of the establishment. 

The sale or transfer of certain types of registered loan capital are charged to UK stamp duty at the rate of 0.5% of the amount or value of the consideration for the transfer although this does not typically apply to the transfer of syndicated loans depending on their terms.

Other than the costs set out in 5.1 Assets and Forms of Security, there are no UK taxes, duties or charges relevant to lenders taking security or guarantees from English companies. 

A default interest clause may be unenforceable if it is held to be a penalty. A penalty clause is one that obliges the debtor to pay an excessive amount of interest, out of all proportion to any legitimate interest the lender may have in performance. The rule against penalties only applies to default interest; it does not affect interest payable on loans when the paying party is not in breach.

In addition, while there is no mandatory limit on interest rates, extortionate credit transactions can be set aside during insolvency or administration proceedings. The powers to do so are seldom used.

Under the terms of the relevant double-tax treaties with the UK, relief from UK withholding tax on interest payments may be denied to the extent that such interest exceeds an arm's length rate.


Lenders will typically look to take security over all of a corporate obligor’s present and future assets, property and undertaking by means of a debenture (a form of security agreement). The debenture will generally include: 

  • a legal mortgage over real property; 
  • an assignment by way of security of bank accounts, any insurance policies and any material contracts; 
  • fixed charges over certain assets of the chargor’s (including its shares and investments, intellectual property rights, plant and machinery, cash deposit accounts and book debts/receivables); and 
  • a floating charge to cover the balance of the chargor’s assets. 

Where the English obligor owns assets outside of England and Wales, local law security is generally also taken. Where security is being taken from an English individual, that is granted on an asset-specific basis. 

The ranking on insolvency of fixed and floating security in England is different, with fixed security ranking ahead of certain preferential creditors, who rank ahead of floating security. However, to ensure an effective fixed security interest, the security holder must have control over security assets, both contractually and in practice. 

Perfection Requirements

The requirements for the formalisation of security interests are confined to registering the security interest at a public register of security interests, delivery of applicable title and transfer documents (eg, share certificates and stock transfer forms) and serving a notice of security to any relevant third party. 

Any mortgage or charge granted by a company or limited liability partnership registered in England and Wales must be registered at Companies House within 21 days of the date of creation of the charge, or it will be void against a liquidator, administrator and any creditor of the company.

While there are exceptions, a security interest over freehold and leasehold property located in England and Wales should generally be registered as soon as possible after the grant at the Land Registry (registered land) or the Land Charges Department (unregistered land). Although the security interest will not be void due to failure to register, if the security is not registered, an acquirer in good faith of the property can acquire title.

Security over UK patents, registered trade marks and registered designs should be registered at the UK Intellectual Property Office (IPO). Where security is taken over intellectual property registered in the EU Intellectual Property Office (EUIPO), the security must be registered in the EUIPO as well.

Security interests created over ships or aircraft will also need registering on specialist registers for these asset types.

While the law summarised above relates to England and Wales only, the rules of Scots law and the laws of Northern Ireland do not differ materially from this. However, local counsel in the non-English jurisdictions of the UK should always be consulted to determine any differences in matters of detail.

Financial Collateral Regulations

The Financial Collateral Arrangements (No 2) Regulations 2003 (Financial Collateral Regulations) exempt certain security over financial collateral, such as cash, financial instruments and credit claims from registration requirements. In practice, security documents creating these types of security interests are commonly still registered on the basis that if a purported fixed charge over such collateral is re-characterised as a floating charge, it may be deemed to have required registration and be void if registration was not made.

Costs Involved

All registrations of security at Companies House will incur a fee of GBP23 (or GBP15, if filed electronically) in respect of each security document filed. The fee payable on registrations of security at the Land Registry will be assessed on the amount the mortgage or charge secures (between GBP40 and GBP250 per property, or GBP20 and GBP125 per property, if filed electronically), although special rules apply to the calculation of fees for more than 20 properties. All registrations of security at the IPO will incur a fee of GBP50 in respect of each registered patent, trade mark or design.

Security over real property is not liable to stamp duty land tax and there are no other notarisation or stamp fees payable when security is created. There may be a charge to UK stamp duties or taxes on enforcement of security over shares or securities of a UK company or UK real estate in certain circumstances.

A floating charge granted over the assets and undertakings of a chargor is one of the most common forms of security taken by lenders in the UK. A floating charge can be created without restricting the chargor's right to deal with the charged assets without the prior consent of the lender until crystallisation (usually, upon the occurrence of an event of default), at which point the charge attaches specifically to each individual asset. Only a company or an LLP, but not individuals, can create a floating charge.

An important distinction between a fixed and a floating charge is that a floating charge is subject to various preferred claims and the prescribed part, as discussed below, while a priority fixed charge has priority over all other creditors and survives the insolvency of the borrower. Following crystallisation, a floating charge will have the characteristics of a fixed charge, but it will not have the priority enjoyed by a fixed charge. In effect, crystallisation does not itself affect priorities.

Under English law, the board of directors of an English company must act in the best interests of the company of which they are directors, rather than in the interests of its associated companies or the group as a whole.

Issues of corporate benefit often arise in the context of upstream and cross-stream guarantees. 

An upstream guarantee will be acceptable if the guarantor company’s board of directors reaches the conclusion that the giving of the guarantee will bring real benefit to the company or their actions are ratified by a resolution of all the shareholders of the company. Such benefit could consist of the group as a whole receiving financing that would otherwise not be available to it on favourable terms and the parent or other group member agreeing to share the benefit of that financing to the guarantor company in consideration of the guarantee given by it. Transfer pricing rules may lead to guarantee fees being payable between members of the group.

The position is more complicated if there is a risk that the proposed guarantor is insolvent and a shareholder resolution will be insufficient to protect against creditors seeking to set the guarantee aside on the insolvency of the guarantor.

The Companies Act 2006 includes prohibitions on the giving of "unlawful" financial assistance by a public company or its subsidiaries in connection with the acquisition of shares in that public company or acquisition of its English holding company's shares by another person. There is no whitewash procedure to follow and only limited exceptions are available.

Financial assistance includes giving guarantees or security for any acquisition funding. On a debt-financed acquisition of a public company, the target will often first be re-registered as a private company before giving guarantees or security. However, to be re-registered it is necessary to acquire a sufficient percentage to de-list and resolve on registration.

Breach of the restriction against unlawful financial assistance can result in criminal sanctions, including fines and possibly imprisonment of directors and officers of the offending company. Security taken from a company in contravention of the financial assistance restrictions will be void. 

The statutory financial assistance rules do not apply to the acquisition of private companies.

Although there are generally no regulatory restrictions, there may be particular requirements in the case of regulated entities. Additionally, third-party consents may need to be obtained in connection with restrictions on assignment, which are common in a range of contracts such as intellectual property licences, leases and ordinary book debts.

The grant of a guarantee or security by an English obligor should be approved by the obligor’s board of directors. A shareholders’ resolution is usually required as well, in particular in connection with the grant of upstream or cross-stream guarantees or where the provision of the guarantee or security could otherwise breach the prohibition on financial assistance.

Security is usually released by a deed of release upon discharge of the secured liabilities, or on permitted disposal of a charged asset. 

The security provider will usually require the release of any registered charge to be recorded at Companies House, although failure to do so does not affect the effectiveness of the release. When a legal mortgage over registered real estate is released, the lender must file the appropriate Land Registry or Land Charges Department form. 

When an asset subject to a floating charge is sold, a release of the charge is usually not necessary. However, the buyer may request a letter of non-crystallisation from the charge holder to ensure the buyer takes the asset free from any fixed charges. Any security arrangements which have been notified to other parties will require notice of the release and re-assignment.

Priority of security is governed by English common law rules, not by order of registration.

Competing Security Interests

With respect to competing fixed security or mortgages, priority is generally determined based on which security was created first (and registered within the 21-day grace period). The same applies with respect to competing floating charges. A fixed charge or mortgage will rank ahead of a floating charge, except when the fixed charge (or mortgage) is obtained after the floating charge came into existence and the holder of the fixed charge (or mortgage) obtained it knowing that it violated the terms of the existing floating charge.

The priority of successive assignments of an account receivable is not governed by the general common law rule of first in time but rather by the first to give notice.

There are a number of exceptions to these rules, including that, where security is granted over an asset requiring registration in a specialist register (eg, real estate or intellectual property), the priority of such security will be determined by the order of registration in the specialist register. With respect to the priority of mortgages and fixed charges over real estate, the rules differ for registered and unregistered land.


Contractual subordination is recognised by UK courts. It is often used in conjunction with other structuring techniques, such as turnover trust, structural subordination, assignment of junior debt and taking security.

Contractual subordination may be achieved by agreement between creditors, eg, entering into a deed of priority or an inter-creditor agreement. In its simplest form, contractual subordination not only prevents the junior creditor from being paid until the senior creditor has been paid in full, but also subordinates the junior creditor in an insolvency situation to all other creditors ranking equally with the senior creditor. It is also possible to create arrangements whereby the junior creditor is subordinated to the senior creditor only.

Contractual subordination remains effective on the insolvency of a borrower incorporated in England, subject only to the mandatory statutory pari passu principle that the priority of creditors on insolvency is determined by whether they are preferential, general or deferred creditors.

The "self-help" principle applies in relation to the enforcement of security. The security holder may take steps (either itself, or by the appointment of an agent or receiver) to enforce its security over the security asset without recourse to the courts or the realisation of the asset by means of a public auction or other court-administered sale process. Although a court order is not required for enforcement, in the context of security over real property, in order to realise the property, it may be necessary to evict the chargor by court order.

Typically, the relevant security document will set out when and how a lender may enforce its security. Depending upon the nature and terms of the security package, the main methods of enforcing security in England are:

  • taking possession;
  • selling the collateral;
  • appointing a receiver or administrator who realises the collateral;
  • foreclosure (which requires a court order); and
  • appropriation of financial collateral. 

Where the security provider is solvent, the lender will normally be able to appoint a receiver to realise any assets subject to fixed security. Where a lender holds security over assets subject to a floating charge, the lender will be able to appoint a receiver once the charge has crystallised. The events which trigger crystallisation will be set out in the security agreement and will include the taking of steps in relation to enforcement, such as the appointment of a receiver. 

If the security was created prior to 15 September 2003, an administrative receiver may be appointed. Their role is to identify the charged assets and realise them in the same way as with fixed security. If the security was created after 15 September 2003, the lender can only appoint an administrator who, in contrast, must act in the interests of all creditors to achieve the purposes of the administration.

Where the security provider is insolvent, it is still possible that enforcement can take place through the appointment of a receiver, but it is also possible, particularly where the security package is more comprehensive and includes more of the security provider’s assets, that the security provider could be subject to a formal insolvency procedure such as an administration.

English courts will uphold the parties’ express choice of law as the governing law of the contract save for certain circumstances in which the parties’ choice of law may be modified by law (in respect of contractual obligations under the Rome Convention or the Rome I Regulation, or non-contractual obligations under the Rome II Regulation). For example, where the choice of forum is England and Wales, English mandatory rules will apply, irrespective of the parties’ choice of law in respect of both contractual and non-contractual obligations.

Submission to a Foreign Jurisdiction

As to submission to a foreign jurisdiction, English courts look to uphold exclusive jurisdiction clauses (including where in favour of non-English jurisdiction) subject to the application of the European regime (which comprises the 2001 Brussels Regulation, the 2007 Lugano Convention and the Recast Brussels Regulation) and English common law.

Where a "foreign" jurisdiction chosen by the parties is within the European regime, it will have jurisdiction (save in certain cases set out in the Convention and Regulations, eg, where the proceedings relate to rights in rem). The European regime provides a mechanism to address competing claims to jurisdiction which is broadly based on which jurisdiction was first "seized" of the claim and (from January 2015) whether an exclusive jurisdiction agreement exists between the parties. Where the foreign jurisdiction is not within the European regime, English courts have been willing to stay English proceedings in favour of foreign proceedings, usually as long as the European regime does not expressly reserve jurisdiction to itself in the particular case, although this may depend on whether the foreign court was first "seized".

In future, the legal framework relating to choices of law and jurisdiction may change following the end of the transitional period following Brexit. In particular, in the case of a “no-deal” Brexit, the Hague Convention on Choice of Court Agreements (Hague Convention) will apply to mutual recognition between the UK and EU member states of exclusive jurisdiction clauses. See 6.3 A Judgment Given by a Foreign Court. Any foreign or Commonwealth state may waive its right to sovereign immunity by submitting to the jurisdiction of the English courts.

English courts will generally give effect to a foreign judgment without a retrial of the underlying merits of a case. Broadly, foreign judgments will be enforced using one of four principal avenues:

  • Judgments of the courts of EU member states and other European countries will be enforced via the European regime. In order to enforce a judgment pursuant to the Brussels Regime, the enforcing party must apply to the English court by filing the judgment (and a certified translation). There is very limited scope for defending an enforcement action under the Brussels Regime, for example, contrary prior judgments or public policy grounds (in exceptional circumstances).
  • Judgments of the courts of Norway, Switzerland and Iceland (European Free Trade Association countries) will be enforced pursuant to the 2007 Lugano Convention. The process of enforcement and the grounds for resisting enforcement are similar to the Brussels Regime.
  • Judgments of certain Commonwealth countries (such as Australia, India and New Zealand) will be enforced pursuant to the Foreign Judgments (Reciprocal Enforcement) Act 1933 and the Administration of Justice Act 1920.
  • Judgments not covered by the above instruments can be enforced at common law. This typically involves applying for summary judgment which, except in very limited circumstances (such as fraud), will not require retrial of the merits of the case. However, there are additional grounds under common law for defending an enforcement action than with other mechanisms.

Similarly, pursuant to the Arbitration Act 1996, English courts will give effect to arbitral awards without re-examination of the merits of an underlying case. In particular, Part III of the Arbitration Act gives effect to the New York Convention, meaning that arbitral awards made abroad are enforceable in England and Wales (with limited scope for the party against which the enforcement applies to object).

The prevalence of directly-applicable EU law within English law means that, following the end of the transitional period following Brexit, the English law framework regarding the enforcement of foreign judgments will change. As a result, in a “no-deal” scenario, the enforcement of EU judgments in England will continue under the existing regime for any judgments obtained on or before exit day, and similarly, for any EU judgment obtained where the relevant EU court was seized of the proceedings on or before exit day. However, that same regime will not apply within the EU for English proceedings already underway as of exit day nor for English court judgments obtained prior to exit day.

Any later proceedings and enforcements of English court judgments in the EU will be governed by a different regime under the Hague Convention, which envisages mutual recognition of exclusive jurisdiction clauses and a judgment enforcement regime. However, in the case of a no-deal Brexit, there will be no substantial change to the enforcement of arbitral awards, as that is governed by the New York Convention, to which the UK is a separate signatory and convention therefore exists entirely outside the EU legal structure.

There are no restrictions applicable to foreign lenders specifically.

However, Article 55 of the EU’s Bank Recovery and Resolution Directive (2014/59/EU) (as amended) requires that wording is included in a wide range of non-EU law governed financial contracts, by which the parties recognise that the financial contract may be subject to bail-in action by EU authorities. As a result, the counterparty’s claims may be written down or converted to equity. The BRRD I will continue to apply in the UK following the end of the transitional period by virtue of certain statutory instruments that were implemented via amendments to the Banking Act 2009.

Appointment of a Receiver

Unless a company is in liquidation or administration, a secured creditor can appoint a receiver to realise the assets over which it has security. The receiver is appointed by the secured creditor but acts as agent of the company.


Administration is a court-supervised process under which the administrator owes duties to the creditors as a whole. It is designed to preserve an insolvent company’s business, with the administrator managing the affairs of the insolvent company.

In the context of an administration, the holder of a “qualifying floating charge” over all, or substantially all, of a company’s assets has the right to effectively veto the appointment of an administrator by the insolvent company’s directors or creditors and insist on its own appointee. An automatic moratorium is put in place that prevents creditors from enforcing their security over the company without leave of the administrator or the court. 

To approve the proposals in administration and bind all creditors, a simple majority of more than 50% (in value) of creditors voting must vote in favour of them. However, a vote in favour of the proposals is invalid if more than 50% (by value) of creditors who are unconnected to the company vote against it.

Company Voluntary Arrangements and Schemes of Arrangement

Company voluntary arrangements (CVAs) and schemes of arrangement are additional statutory procedures which may form part of, or be separate from, other procedures such as administration or liquidation. 

A CVA allows a company to agree an arrangement with its creditors in satisfaction of some, or all, of its debts. In recent years, CVAs have been used to restructure leases of underperforming properties, predominantly in the retail and leisure sectors. CVAs can also be used in compromising unsecured bonds, significant trade or unsecured guarantee liabilities.

A scheme of arrangement is a procedure whereby a company may make a compromise or arrangement with its members or creditors. Unlike a CVA, a scheme of arrangement can bind secured creditors even without their express consent if the requisite majorities are achieved. Schemes are extremely flexible, and have been used to effect public takeovers and make amendments to English law governed credit agreements, in addition to more conventional restructurings.

New Measures under the Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act 2020, which came into effect on 25 June 2020 and was fast-tracked through parliament during the coronavirus crisis, has introduced important substantive changes to the UK insolvency and restructuring law, including:

  • A moratorium for UK companies: during the moratorium, which does not require a company to begin any other insolvency proceedings, no creditor action can be taken against the company without permission of the court. The moratorium will be available to companies which are or are likely to become unable to pay their debts and it is likely that the moratorium would result in the company’s rescue. The initial moratorium period will be 20 business days, but this can be extended with creditor approval for up to a year.
  • A cross-class cram-down scheme of arrangement: the court will be able to sanction a scheme proposed by a company in financial difficulty where the scheme has been approved by at least one class that would receive a payment or have an economic interest in the company and the court sanctions the scheme as "fair and equitable" and in the interests of creditors.

In the enforcement section of this note, reference has been made to the fact that enforcement in the context of an insolvency may occur as part of a formal insolvency procedure. An important exception is that if the debtor company is in administration, then its assets will be subject to a temporary moratorium and the lender will be unable to enforce its security unless that security constitutes a financial collateral arrangement. Additionally, a secured creditors will not be able to enforce where the debtor has been put into compulsory liquidation, where an eligible small debtor company has proposed a voluntary arrangement or where the new free-standing moratorium is in effect (see 7.1 Company Rescue or Reorganisation Procedures Outside of Insolvency). The insolvency of the principal obligor does not reduce or extinguish the lender’s rights against the guarantor. 

A lender that wishes to start insolvency proceedings against a borrower with interests in more than one EU member state should consider the location of the borrower’s centre of main interest (its "COMI") under the EC Insolvency Regulation. The COMI is relevant in determining the law governing the proceedings and the authority of the insolvency practitioner in the various jurisdictions involved.

On insolvency, creditors' claims generally rank in the following order:

  • administrator’s or liquidator’s costs and expenses in realising fixed security;
  • fixed security;
  • expenses of the insolvent estate;
  • creditors preferred by statute, primarily employee claims and contributions to an occupational pension scheme (in practice, amounts may be fairly limited);
  • floating charges;
  • unsecured creditors; and
  • equity holders.

From 1 December 2020, preferential status will be given to certain indirect taxes due from an insolvent business to the HMRC (the “Crown Preference”). The relevant taxes will be those which have been paid to the business by customers or employees or withheld by the business for payment to HMRC on behalf of customers or employees, include VAT, PAYE (including loan repayments), Employee National Insurance Contributions (NICs) and Construction Industry Scheme Deductions. HMRC would remain an unsecured creditor for direct taxes such as corporation tax and Employer NICs.

In addition, a "ring-fenced pot" of money must be set aside for unsecured creditors out of the net floating charge realisations created after 15 September 2003.  The cap on the prescribed part is currently GBP600,000 although under recent legislation the amount increases to GBP800,000 for floating charges created on or after 6 April 2020 where the insolvent company’s net assets exceed GBP2.985 million.

The priority rules relating to the prescribed part do not apply to companies that are subject to a CVA or to floating charges that are financial collateral arrangements under the Financial Collateral Regulations.

There is no concept of equitable subordination under English law. Generally, shareholders who have debts will be allowed to enforce them, although rules regarding deemed distributions may apply.

Under Section 238 of the IA 1986, a liquidator or administrator has two years from the commencement of the insolvency procedure to commence actions to unwind transactions that are at an undervalue. Voidable transactions include the grant of a guarantee or security. The court will, however, not declare a transaction void if it was entered into in good faith and with the reasonable belief that it would benefit the company. 

The insolvency practitioner also has the ability to challenge transactions that occurred in the last six months before the onset of insolvency (or two years in the case of connected parties) and that give a creditor preference over other creditors, and were entered into with the desire to prefer that creditor. 

Lastly, any floating charges, other than in support of a new financing, entered into between unconnected parties and granted within one year of the onset of insolvency by an insolvent chargor (or if the chargor became insolvent as a result of it) are invalid (Section 245 of the IA 1986).

Project finance has been used to finance large capital-intensive energy and infrastructure projects in the UK since the 1970s.

In the wake of the financial crisis, continuing pressure on commercial banks’ liquidity and the tightening of regulatory requirements under the Basel III rules saw many banks reduce or cease their involvement in project financing transactions, with institutional investors increasingly closing the financing gap in UK infrastructure projects.

Project finance in the UK is not subject to a specific legal framework and the applicable rules will often depend on the sector and location of the relevant project. In addition to UK legislation, the applicability of European law must be taken into consideration when structuring and procuring projects. Relevant European law provisions include the state aid rules under Articles 107 and 108 of the Treaty on the Functioning of the European Union (State Aid Rules) and various EU environmental regulations. In addition, the planning and licensing regimes in the UK are also a prime consideration in project financing transactions.

The UK has long been at the forefront of public-private partnership (PPP) transactions. and there is considerable precedent for this type of financing in the UK.

The IPA and NIC

The Infrastructure and Projects Authority (IPA) performs the function of the government's centre of expertise for infrastructure and major projects. Additionally, the UK National Infrastructure Commission (NIC) provides advice to the government on major, long-term infrastructure challenges in the UK.

The procurement process for PPPs in the UK with a value in excess of the applicable financial threshold set out in the EU Public Sector Procurement Directive 2014/24/EU is governed by the Public Contract Regulations 2015. Formal tender processes (under these regulations) are viewed positively in the market and facilitate the financing of infrastructure projects.

Private Finance

The private finance initiative (PFI), traditionally used for capital-intensive projects, was previously the dominant PPP model in the UK. In 2012, the government adopted a new approach to PFI known as Private Finance 2 (PF2) and all PPP documents followed the standard wording and guidance set out in the Standardisation of PF2 Contracts. In October 2018, in the wake of the collapse of construction firm Carillion, PFI and PF2 models were abolished as they were considered inflexible and overly complex and a source of significant fiscal risk to the government.

Existing contracts under the PFI and PF2 models will be honoured but no new contracts under these models will be entered into. Given the crucial need for private sector investment in UK infrastructure, the market expects a new PPP model to be introduced, but it is not clear at this stage what form this will take. 


Brexit poses significant uncertainty to the project finance industry and the infrastructure sector. In particular, Brexit poses significant legal uncertainty as, for example, following the end of the transitional period, European legislation relating to procurement and environmental matters, as well as the State Aid Rules, will no longer apply (unless and until equivalent legislation is put in place). It is hoped that clarity on the UK’s future relationship with the EU will lead to stabilisation of the project finance industry and greater interest from investors in UK infrastructure.

The relevant government approvals, licences and statutory controls required for a project will depend on the nature of each project, as described below in 8.8 Environmental, Health and Safety Laws.

The tax regime governing project finance transactions is generally the same as for other commercial loan transactions as set out above in 4 Tax. In addition, there are a number of tax incentives in the UK to attract investments in energy and infrastructure projects, such as those under the Energy Act 2013 for low-carbon generation and enhanced capital allowance for specific energy-saving plants and machinery.

The transaction documents do not need to be registered or filed with a government body, with the exception of any document creating a security interest (see 5.1 Assets and Forms of Security).

The governing law of transaction documents for projects in the UK will generally be the laws of England and Wales. Depending on the location of the project, Scots law or the laws of Northern Ireland may govern some project documents.

Several government bodies are responsible for projects in the UK. Most central government departments have a private finance unit responsible for overseeing projects in their sector. These include the Ministry of Defence, the Department for Transport, the Department of Health, and the Department of Energy and Climate Change, which deals with oil and gas exploration or production projects. In addition to these government bodies, PPP and PFI (where still applicable) policies are driven from within HM Treasury and the Cabinet Office. Furthermore, PPP and PFI are devolved matters and are regulated by the Strategic Investment Board in Northern Ireland, the Scottish Infrastructure Investment Unit in Scotland and the Welsh Assembly in Wales.

Certain regulated sectors are also administered by government bodies, such as the Water Services Regulation Authority (the economic regulator of the water sector), Ofgem (the regulator of the electricity and gas market) and the Office of Communication (the regulator and competition authority for the communications industry). These bodies are, among their various functions, responsible for issuing licences to operate in their respective sectors.

The first issue to be considered when structuring a project is the bankability of the project and the related contractual arrangement. As part of the assessment of the bankability of the project, a comprehensive risk analysis will be conducted and the various risks, once identified, should be appropriately allocated in the transaction documents to the parties best placed to bear such risks.

The equity investor(s) and owner(s) of the Project Company can be a single party but are more commonly a consortium of sponsors. Project Companies in the UK are commonly an SPV incorporated as a limited liability company.


Funding sources available to Project Companies include commercial lenders, export credit agencies, international institutions such as the European Investment Bank and project bonds investors. The financing is provided on a limited recourse basis which means that the lenders’ only recourse in case of default is to the assets and cash flows of the Project Company. It is, however, not unusual for lenders to require contingent equity and/or some form of completion guarantees from the sponsors. Project financing in the UK is typically highly leveraged with a gearing ratio in the range of 80/20, but it is not uncommon for the gearing ratio to be as high as 90/10.

Restrictions may apply to foreign investors in relation to certain regulated business sectors in the UK, such as energy and defence. Investors from outside the EU may also be affected by EU sanctions, which may be autonomous or reflect measures imposed by resolutions adopted by the UN Security Council.

Typical sources of finance in project finance transactions include long-term limited-recourse loans from (conventional and/or Islamic) commercial banks, development finance institutions and/or other financial institutions. In addition, project bonds have increasingly been utilised, often in conjunction with limited recourse loans, as an alternative source to meet the financing requirements of large-scale capital-intensive projects.

Projects may be purely private (such as independent power projects), involve a partnership between the public and private sectors (PPPs) or be built and operated entirely by the public sector. Generally, PPPs are long-term contracts (eg, 20–30 years) under which the Project Company constructs the project, such as a road, using financing obtained on a project finance basis and, thereafter, operates and maintains the project in return for:

  • availability payments from the relevant public authority (referred to as availability-based contracts); or
  • charges/payments from end-users of the asset or service (referred to as "user-pay" or concession contracts).

Natural resources in the UK include oil, natural gas, coal and minerals. Ownership of oil and gas within the land area of Great Britain is vested in the Crown by the Petroleum (Production) Act 1934 and the Continental Shelf Act 1964. The ownership of almost all coal in Great Britain resides with the Coal Authority, while ownership of gold and silver is vested in the Crown. Other minerals are in private ownership, with the owner of the land entitled to everything beneath or within it. The Minerals Development Act (Northern Ireland) 1969 vested the ownership of most minerals in Northern Ireland in the Department of Enterprise, Trade and Investment.

The natural resources sector in the UK is regulated by a number of statutory bodies, depending on the mining activity and the location, including the Environment Agency in England, the Scottish Environment Protection Agency, Natural Resources Wales and the Northern Ireland Environment Agency, together with the Health and Safety Executive and the Department of Energy and Climate Change (DECC).

Planning Permission and Licences

Planning permission and licences are required from the relevant authority for the extraction of natural resources in the UK in addition to the rights of access granted by the landowner (for onshore natural resources), unless the land is owned by the Project Company. The Oil and Gas Authority (an agency of DECC) is responsible for issuing licences for oil and gas exploration onshore (excluding Northern Ireland which issues its own licences) and on the UK Continental Shelf, for regulating field development and oil and gas pipeline activities and monitoring environmental impact, including decommissioning. The Energy Act 2008 introduced further requirements for licensing, including for the offshore storage of natural gas and carbon dioxide, and additional requirements relating to the funding of the decommissioning of offshore installations. The Coal Authority (sponsored by the DECC) is responsible for issuing licences for coal exploration and extraction. The Crown Estate Mineral Agent is responsible for granting exclusive leases and licences for exploration and development of Royal Mines to mine gold and silver. There is no specific licensing requirement for the exploration and extraction of other non-fuel minerals.

Planning authorities play an important part in the regulation of mining activities in the UK. In England and Wales, planning permission is granted by the mineral planning authority, commonly the county council, and under the Planning Act 2008. The Planning Inspectorate makes recommendations to the DECC, which makes the final decision on applications to develop significant projects. In Scotland, planning permission is granted by the local planning authority and in Northern Ireland, planning permission is granted by the strategic planning unit.

There are no restrictions to trading most natural resources with other EU countries as the EU operates as a single market. Natural-resources exporters may, however, need a licence for the export of a number of strategic controlled goods, such as goods with a potential military use listed in the Export Control Order 2008 (as amended) which applies to certain metal fuels and alloys.

Environmental Impact

The environmental impact of natural resources extraction should be a prime consideration of project sponsors. The main source of environmental control in the UK is the planning permission regime. Most planning permissions impose environmental restrictions and obligations on the permit holder, including upon decommissioning. In addition, the Environmental Permitting (England and Wales) Regulations 2010 (as amended) requires environmental permits for most natural resources-related activities. Any impact on local wildlife may also give rise to the requirement to obtain a licence under various conservation legislation.

As highlighted in 8.7 The Acquisition and Export of Natural Resources, the main sources of environmental laws applicable to projects in the UK are the Environmental Permitting (England and Wales) Regulations 2010 (as amended) and the planning permit obtained by the Project Company. The regulatory bodies overseeing environmental issues in the UK are the Environment Agency in England, the Scottish Environment Protection Agency, Natural Resources Wales and the Northern Ireland Environment Agency. Projects in the UK are also subject to EU environmental laws in many areas, such as air pollution, sustainable development, waste management, water protection, soil protection and noise pollution. The EU Environmental Impact Assessment Directive 2014/52/EU (EIA Directive), as transposed into UK law, imposes requirements for the assessment of the impact of projects on biodiversity, climate change, landscape and disaster risks and imposes monitoring obligations during both the implementation and operation of the project.

The Health and Safety Executive (HSE), together with local authorities, is responsible for overseeing health and safety in the UK and enforcing the Health and Safety at Work etc. Act 1974 (HSW Act) and a large number of sector-specific acts and regulations, such as the Offshore Installations (Offshore Safety Directive) (Safety Case, etc) Regulations 2015, which applies to offshore oil and gas activities. Project companies (and their management team) that breach health and safety legislation in the UK risk being prosecuted, with penalties with respect to the HSW Act ranging from a GBP20,000 fine and/or 12 months’ imprisonment to an unlimited fine and/or two years’ imprisonment.

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Milbank LLP is a pre-eminent global law firm that for over 150 years has provided innovative legal solutions in many of the world’s largest, most complex, "first-ever" corporate transactions and disputes. Milbank’s clients are prominent multinational financial, industrial and commercial enterprises, governments, institutions and individuals.

The onset of COVID-19, accompanying volatility and increasing focus on areas such as environmental, social and governance (ESG) marked the first half of 2020 in the leveraged finance markets. With the European syndicated leveraged loan and high-yield markets firmly “closed” from March, the outlook appeared somewhat gloomy. COVID-19-related waivers/amendments and financings began to appear and different options for liquidity-driven financings were widely explored for COVID-19-impacted businesses. Market participants mused that the return of the market would see a “tightening” of lending terms in a more creditor-friendly manner.

The period in which the syndicated debt markets were firmly “closed” provided an opportunity for private credit providers to fill the void and look to capitalise on opportunities across the capital structure.

When the syndicated debt markets returned in June and July, significant investor "pre-sounding" became the norm in relation to a large group of potential investors for each loan transaction. Borrowers and underwriters have worked hard to identify and address key investor concerns early in the distribution process.

The combination of increased liquidity in the private credit market and generally more robust credits in the European syndicated debt market, enabled favoured credits to achieve and, to some extent, accelerate an improvement of documentary terms.

Calculation of Consolidated Net Income/Consolidated EBITDA

One big question in the early months of 2020 when global lockdowns first bit was the extent to which loss of revenue can be added back to Consolidated Net Income or EBITDA. Views diverged, but there was very close consideration of available addbacks and, in the syndicated debt market, notwithstanding significant market commentary and debate on “EBITDAC” (ie, EBITDA plus COVID adjustments), ever-widening addbacks were sought for non-recurring, exceptional, one-off and extraordinary costs and losses when the markets re-opened in June and July.

Added to this, the market was pushed for more permissive "pro forma" adjustments by borrowers which in some cases permit uncapped run rate cost savings, synergies, operating expense reductions and revenue increases with no time horizon for anticipated realisation of benefits.

For more stressed credits, creative solutions like the substitution of 2019 EBITDA were proposed/accepted in the COVID-19 context, generally with the addition of a minimum liquidity test designed to ensure that borrowing group has sufficient cash to get by on.


Well-publicised litigation such as J Crew and PetSmart continued to play on debt investors’ minds, and in Europe the first of several similar transactions was seen in the form of Olympic Entertainment. Prior to the start of 2020 in Europe, although very similar flexibilities were included in loan and bond documentation, business owners seemed less enthusiastic about pushing transactions through using these flexibilities. In the first half of 2020 we saw the first signs that things were starting to change.

Olympic Entertainment announced a group reorganisation which resulted in all of the group’s online business and its land-based business in Lithuania being transferred to an “unrestricted subsidiary” (a company controlled by the same business owners but outside of the banking group). It was a relatively small transfer with an estimated value of EUR18.4 million. Similar issues also arose in the USA in litigation involving Travelport which transferred approximately USD1.15 billion in intellectual property out of the existing banking credit group to entities that were designated as “unrestricted subsidiaries”. Issues that arise can include valuation, but the view of borrowers like these tends to be that they have clear contractual rights to undertake such transactions.

In addition, McLaren ultimately discontinued a court case seeking approval for the release of key assets (being the company’s heritage car collection and its Woking UK headquarters) subject to security in favour of bondholders, in connection with a proposed transfer out of the bond credit group. The company launched a consent solicitation to introduce specific provisions related to certain asset sales/transfers (which involved assets forming part of the bondholders’ collateral package).

Market commentators now acknowledge that even without specific provisions designed to permit value to be leaked to business owners (eg, the two-step "J Crew" structure), there is now sufficient general investments and dividends/distributions capacity under many syndicated loan and high-yield bond covenants that significant, "crown jewel"-type assets like IP can be disposed of from the borrowing group to the benefit of the business owners. This is an area to watch as businesses become more stressed.

A similar area of focus are the provisions which allow borrowers to dispose of material assets without the requirement that the proceeds are used to pay down debt. Instead, proceeds can be used to pay out dividends to business owners. These types of provisions generally garner debt investor push back in the syndicated debt market but are increasingly commonplace and point to increased leakage capacity available to business owners when trading conditions get tougher.

Recent examples remove customary requirements for 75% of the proceeds to be received in the form of cash and include leveraged-based step downs (whereby the percentage of proceeds required to be prepaid depends on the pro forma consolidated leverage in the group). It is also increasingly the case that disposal proceeds can, to some extent, be used to pay junior debt ahead of senior debt, once again subject to pro forma leverage ratios.

Debt Capacity

With the onset of the uncertainty created by the COVID environment, there was significant scrutiny of existing deals to ascertain the flexibility to include liquidity facilities either as further senior secured debt or as "priming" debt which was either structurally senior or benefitting from security over “crown jewel” assets, which are generally not required to form part of the collateral package in leveraged loan and high-yield bond transactions.

Against this background, deals that came to market in June and July regularly included no cap on non-guarantor permitted debt incurrence and no restrictions on non-guarantors pledging their assets in favour of third-party creditors.

Similarly, "pick your poison" baskets – where borrowers can use leakage capacity to build other baskets – have seen a resurgence in Europe. Broader formulations have been proposed where any restricted payment or investment capacity can be used to create debt capacity, with a view to increasing future options for borrower liquidity if needed.

Yield Protection

Investors’ battle to protect their yield when future debt is put in place has been increasingly unsuccessful. Generally, in Europe, the periods for which yield protection on future debt is available have shortened and the categories of debt to which the protection applies reduced (along with the scope of the protection, so protection is tied only to the margin and not to the overall yield).

Investor Ability to Sell Debt

The ultimate investor protection is the ability to sell out of the debt in the event investors are unhappy with the performance of the business or the strategy of management. While in high-yield bonds this is essentially unrestricted, in Europe this has continued to be a real area of borrower and investor focus.

Rather than becoming more lender-friendly (as many loan investors may have hoped) the first half of 2020 in the European market has seen a further erosion of protections as restrictions on transfers to both loan-to-own investors and distressed debt investors have been entrenched in some deals so they do not fall away, even on a non-payment or insolvency event of default.

In volatile markets with macro-economic uncertainty, the ability to trade out of the debt is really a key protection for investors. It is therefore telling that top-tier private equity firms have been able to sell debt successfully, with such terms eroded.

Convergence of the Private Credit Market Terms

Previously, many commentators have noted that in the broadly syndicated debt markets, there has been a progressive convergence between the European loan, New York TLB and high-yield bond products. The first half of 2020 has been something of a watershed for the private credit market in Europe. The gap left by the syndicated market was quickly filled by private debt providers. Traditionally this market has been more disciplined than the syndicated debt market in terms of documentary protections, with the product being restricted to smaller transactions where less covenant flexibility is more common than in the larger, syndicated transactions.

The first half of 2020 has seen much larger deals being done – most notably with Areas arranging a GBP1.875 billion financing commitment to The Ardonagh Group through its global direct lending platform. As transaction sizes increase in this manner, it is likely that lender protections will see some erosion and converge more with the syndicated market.


The first half of 2020 saw further development of debt financing transactions in the syndicated leveraged finance market, with more of a focus on environmental, social and governance issues. In March 2018, the Loan Market Association, the Asia Pacific Loan Market Association and the Loan Syndications and Trading Association (trade associations representing participants in the London, Asian and US loan markets respectively) launched their green loan principles.

In early February 2020, the LSTA released its first “ESG Diligence Questionnaire” with a view to standardising and streamlining ESG disclosure in the US leveraged loan market. Loans with interest payments directly linked to ESG factors (known as sustainability linked loans) are beginning to be seen in the European syndicated debt market and this is an increasing area of focus for debt investors. In short, the pricing includes an incentive for the borrower to achieve ambitious and pre-determined sustainability performance targets. This has been manifested in the European leveraged loan market using metrics like ESG agency ratings and KPIs like emissions levels.

There are not yet sufficient examples in the European leveraged loan market to establish standardised approaches to documentation, but this is clearly an area to watch for further development.


Overall, the first half of 2020 is likely to be viewed as historic in many ways.  Looking back, it can be seen that even where the syndicated loan and high-yield markets closed, private credit investors still provided the largest ever unitranche financing, and that was followed closely by the successful loan and high-yield bond syndication of credits like ThyssenKrupp and Masmovil. The result of successful debt distributions like these has enabled borrowers to achieve ever more favourable terms, notwithstanding the global turmoil. In other segments of the market, relief and additional liquidity lines have been sought using just those flexibilities in more severely COVID-impacted businesses.

In addition to this kind of capital raising, there have also been the first examples in Europe (together with further examples in the USA) of business owners using in-built documentation flexibility to extract value from loan and bond credit groups. Yet other borrowers are looking to the future by incorporating ESG-based incentives with a view to meeting ESG targets. While the macro indicators remain uncertain, it seems that debt markets demonstrate both resilience and versatility.

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Law and Practice


Winston & Strawn London LLP provides a wide range of legal services, through its corporate and finance practice, to public and private companies, leading financial institutions, multilateral and development finance institutions, private equity and investment funds, alternative funding sources, investors and emerging companies. The firm advises on high-profile transactions and matters from cross-border transactions, initial public offerings (IPOs) and project finance matters, to distressed acquisitions and creative “first-of-their-kind” financings. Clients include leading domestic and international funding sources that provide senior, subordinated, secured and unsecured debt and hybrid (equity/debt) products, as well as institutional investors who regularly participate in the senior debt markets, equity sponsors, and borrowers in both developed and emerging economies. The practice focuses on complex cross-border deals, assisting domestic and international commercial and investment banks, finance companies, multilateral and development finance institutions, public and private companies, private equity funds and portfolio companies, on investment grade, leveraged and mezzanine financings.

Trends and Development


Milbank LLP is a pre-eminent global law firm that for over 150 years has provided innovative legal solutions in many of the world’s largest, most complex, "first-ever" corporate transactions and disputes. Milbank’s clients are prominent multinational financial, industrial and commercial enterprises, governments, institutions and individuals.

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