Emory Bankruptcy Developments Journal


The use of uptier transactions has exploded in the leveraged loan market, precipitated by economic pressure, flexible debt documentation, and permissive treatment by courts. In an uptier transaction, a borrower typically issues senior debt to a new or pre-existing group of lenders by exchanging outstanding debt for superpriority debt, thereby subordinating an existing class of lenders. The principal result of these transactions is that the borrower may obtain follow-on secured financing without offering the investment to all its lenders, thereby materially decreasing the value of each excluded lender’s investment. Due to the material effects of these transactions to unsuspecting lenders, they have been scorned as “hostile restructurings” that promote “theft” and “lender-on-lender violence.”

This Comment will explore (1) how uptier transactions affect a borrower’s capital structure; (2) why a borrower would pursue an uptier transaction and why a lender would consent; (3) the legal and equitable issues courts have addressed when analyzing contested uptier transactions; and (4) the consequences of each court’s ruling to the leveraged loan market. Finally, this Comment will conclude by recommending that Congress and the courts permit stakeholders in the leveraged loan market to self-regulate the treatment of uptier transactions as a practical solution.