The financial shuffleboard game you didn't know you were playing

Borrowers keep knocking down the competition’s discs with priming debt, but “sacred rights” blockers aren’t quite as common as you’d think.

Dan Wertman

“𝗣𝗿𝗶𝗺𝗶𝗻𝗴 𝗱𝗲𝗯𝘁” is like a game of shuffleboard. Let me explain.

Player 1 goes first and lands on 10. Player 2 goes second and knocks Player 1’s disc from 10 to 7, with Player 2’s disc staying on 10. The strategy seems pretty obvious to anyone who’s played shuffleboard: place more discs closer to the top of the board to block the opposing player’s shot, thereby protecting your disc’s placement on 10.

“Priming debt” effectively subordinates existing debt to new debt, giving borrowers more time to forestall a restructuring or bankruptcy while utilizing existing collateral. But priming debt isn’t always possible if deals include “sacred rights” blockers.

With liability management transactions becoming more prevalent—and borrowers using loopholes to raise priming debt with the approval of a bare majority of lenders—you’d expect increasing prevalence of “sacred rights” blockers in new deals as a counterbalance. Interestingly, that hasn’t been the case.

In Q3 ‘24, 74% of publicly filed credit agreements required all lenders to consent to amendments to pro rata sharing provisions, consistent with the same period in 2023.

Similarly, in Q3 ‘24, 43% required all lenders to consent to subordination of liens, with 42% requiring the same in Q3 ‘23.