1) ALERT
Finance
JANUARY 2016
The Anti-Cookson Clause Revisited: A Useful Tool for Lien Restrictions
by Anthony Pirraglia, Partner
In any secured financing, lenders are concerned about
issuer’s principal bank credit agreement. The Model
their liens being primed. This is of particular concern
Form has now expanded the protection to “Material
where the financing permits, as many financings
Credit Facilities” which include any future credit facility
often do, the incurrence of additional secured debt
evidencing indebtedness for borrowed money above a
by the borrower or issuer. While there are a number
to-be-negotiated threshold.
of restrictions that can be added to the financing
documentation to guard against the borrower or issuer
creating debt that is senior to a noteholder’s existing
debt, the private placement market has moved toward
the use of the so-called anti-Cookson clause.
The anti-Cookson clause prevents the issuer from using
secured debt availability in the lien basket to secure
obligations arising under the issuer’s Material Credit
Facilities without equally and ratably securing the notes
under the note agreement. Even though the market
The anti-Cookson clause began to appear in note
had its wake-up call with respect to lien protection,
purchase agreements after the restructuring of Cookson
noteholders must remain vigilant and ensure that the
Group PLC, in which Cookson Group granted security
anti-Cookson protection appears in the documentation
and guarantees to its banks under its permitted lien
and is not negotiated away. It is an important protection
basket without the consent of the holders of the private
for the noteholders and should be included in every note
placement notes it had issued. The Cookson Group’s
purchase agreement that permits the incurrence by the
private placement note documentation permitted
issuer of any additional debt. Below are samples of the
additional debt but failed to provide that such debt could
anti-Cookson provision:
not be senior to the existing notes held by the holders.
n  —
A
(k) in addition to the Liens permitted by the
To address this potentially disastrous result, an anti-
preceding subparagraphs (a) through (_), inclusive,
Cookson provision was added to private placement
of this Section [__], Liens securing Priority Debt of the
documentation so that issuers retain the flexibility
Company and its Restricted Subsidiaries, provided
to incur additional secured bank debt while holders
of notes are not subordinated to that debt.1 Initially,
the anti-Cookson provision was intended to allow
noteholders to maintain parity with lenders under the
Los Angeles
New York
Chicago
Nashville
1 he private placement market first added anti-Cookson protection to the
T
Model Form for domestic issuers in the discussion draft of April 2011 and
modified the provision into its current form in October 2012.
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2) that such Priority Debt shall be permitted by
a Material Principal Credit Facility shall not
the limitations set forth in Section [priority debt
be permitted under the Lien Basket unless
covenant] at the time that the Lien securing
the Indebtedness of the Obligors under this
such Priority Debt is created, provided further,
Agreement (including, without limitation,
no Lien pursuant to this Section [__] shall
the Guaranteed Obligations) and the Notes,
secure the Bank Credit Facility, any Additional
is equally and ratably secured with all such
Company Credit Facility or any Subsidiary
Indebtedness so secured under the Principal
Credit Facility or, in each case, guaranties by
Credit Facility pursuant to documentation
the Company or any Restricted Subsidiary
in form and substance satisfactory to the
in respect thereof, unless the Notes are also
Required Holders.
secured equally and ratably pursuant to an
agreement reasonably satisfactory to the
Required Holders.
n 
B
For more information about the anti-Cookson clause
and other lien restrictions, please contact Anthony
Pirraglia (212.407.4146 or apirraglia@loeb.com) or any
— To the extent that Liens and other
member of Loeb & Loeb’s Finance Practice Group.
encumbrances in paragraphs [__] through [__]
above do not secure obligations (including
This alert is a publication of Loeb & Loeb and is intended to provide
information on recent legal developments. This alert does not create or
Indebtedness) exceeding at any time [__]% of
Consolidated Net Book Value (the “Lien Basket”);
continue an attorney client relationship nor should it be construed as
legal advice or an opinion on specific situations.
© 2016 Loeb & Loeb LLP. All rights reserved.
provided however that Liens and other
encumbrances securing Indebtedness under
Loeb & Loeb’s Finance Practice
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FELICIA ALFORD GIBBS
LANCE JURICH
