medium · Corporate Credit Analysis credit-metrics
A borrower executes a 'J.Crew Manoeuvre' by transferring its core Intellectual Property (IP) to an 'Unrestricted Subsidiary'.
Why does this action negatively affect the credit quality of the existing Senior Secured Noteholders?
- It triggers an immediate event of default under the note indenture's negative pledge covenant
- The IP is no longer part of the collateral pool and can be used to secure new, structurally senior debt
- The now-Unrestricted Subsidiary is required to upstream a regular dividend payment to the parent
- It typically forces an immediate ratings upgrade given the increased flexibility granted to the corporate group
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