Paul Hastings LLP, a leading global law firm, has been successful in advising McLaren bondholders in an agreement to call off its attempt to raise money by using an unrestricted subsidiary structure to raise debt against its head office and collection of heritage cars. This is the first time an unrestricted subsidiary structure has been blocked.
McLaren, the UK sports car manufacturer and leading F1 team, attempted to utilise a legal loophole, known as a ‘J Crew trapdoor’, to pledge the collateral, which holders of its £645 million junk rated bonds already had security over, to new lenders. Paul Hastings was enlisted by McLaren’s bondholders to push back against the new fundraising.
Following court proceedings over McLaren’s use of the controversial funding plan, a new deal has been reached between the bondholders and McLaren for it to raise £150 million in new equity, funded on an unsecured basis by the National Bank of Bahrain. McLaren’s majority shareholder is the Bahraini sovereign wealth fund Mumtalakat.
McLaren has now called off its legal case, and stated “having explored a variety of funding options we are very pleased with the outcome which is best for all stakeholders including our bondholders.”
The Paul Hastings team was led by partners Peter Schwartz , David Ereira, Kevin Logue, Richard Kitchen and Ed Holmes with associates Inna Coleman, Carlos Ruiz, Andro Atlaga & Rebecca Denton.
Paul Hastings has successfully created unrestricted subsidiary financing funding in other transactions, but great care has to be taken to ensure that the limitations of the bond indenture are satisfied. As more and more issuers look around to see if there are options for them to raise liquidity in today’s environment, this case is a prime example of the need to steer carefully to get a structure all the way round the course.
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