Letter from the Editor

Spring 2012, Vol. 12, Number 3

The geographic diversification of the private equity landscape continues, notwithstanding the Euro zone crisis and the political turmoil in some parts of the globe. In 2011, U.S. deals accounted for less than half of global private equity activity, and the emerging markets are clearly playing an increasing role in the private equity scene.

On our cover, we explore the increasingly common usage of English law-style agreements in cross border transactions involving even non-UK sellers and assets. We explain why sellers of all nationalities may favor such an approach, while buyers (especially those from the U.S.) may prefer U.S.-style agreements in cross border deals. The primary differences relate to key deal drivers: certainty, pricing, financability and liability.

Earlier this year, when the European banks lacked the capacity to participate in the leveraged lending market, the notoriously episodic high yield window opened, and the European high yield market stepped up to provide all or a majority of the debt financing required for a number of transactions. With high yield debt playing an enhanced role in the capital structure came increasingly complex intercreditor arrangements as well as enhanced disclosure demands from a more vocal investor base. We trace the evolution of the European high yield market and explain the benefits and limitations of these market developments for lenders and private equity sponsors.

We may all have expected “covenant-lite” financings to be a historical remnant of an age gone by, but this spring their progeny have appeared. In this issue, we report on key provisions in the 2012 version of “covenant-lite” deals, particularly the impact of “springing covenants.”

Elsewhere in this issue, we report on developments in the Delaware courts that impact private equity buyers and sellers in unexpected and potentially challenging ways. Two recent Delaware court cases suggest that the fact that a controlling stockholder is facing a liquidity crunch may be an important factor in determining how best to manage a sales process. In addition, we highlight a significant line of cases in New York and Delaware that appear to change the historical assumption often mistakenly made by buyers and sellers that the principle that “fraud vitiates everything” trumps the principle of caveat emptor. As we report, these cases seem to suggest that the courts are likely to enforce a waiver for fraud under appropriate circumstances, and, therefore, the inclusion of fraud claims in a waiver or a limitation of remedies provision should be carefully considered.

Finally, we share some private equity-focused exit opportunities made possible by the “JOBS” Act's wholesale revision of “gun jumping” and update you on the “pay to play” scene.

All of us in the Private Equity Group wish you a terrific summer. As you begin to think about the fall, please let us know if there are any questions or concerns you would like to see addressed in future issues of The Private Equity Report.