Our advice to lenders and investors in the debt lending market consists of familiarizing ourselves with the details of how PetSmart, J. Crew and other miscellaneous baskets, guarantees and guarantees and unlocking rules have been used, and paying attention to similar provisions in their own credit facilities. In the post-J. Crew and Chewy World, lenders must use this cutting-edge knowledge to think critically and creatively across all the different baskets presented in each new credit. In a series of recently published cases, several companies took advantage of Dencau`s exceptions in their credit documentation to move valuable assets out of reach of their priority creditors in order to raise additional capital. J. Crew and Claire`s each relied on a combination of investment baskets to transfer valuable intellectual property to an unrestricted subsidiary. iHeart transferred part of the stakes in a profitable subsidiary to an unlimited subsidiary. A recent case in which PetSmart partially transferred its profitable subsidiary Chewy.com and the corresponding release of the Chewy guarantee is of particular concern to lenders, as the provisions relating to the guarantee exemption are implicit. The parties have encountered different ways to compensate for these competing interests, for example. B the release of a subsidiary that becomes an excluded subsidiary (by designation or otherwise) that requires that the borrower have investment capacity corresponding to the fair value of the subsidiary that no longer provides credit support to the group of lenders. A general review of large credit facilities financed by sponsors shows that it is customary for limited payment and investment baskets to be used to induce a subsidiary to no longer be a 100% subsidiary, either by distributing stakes in the credit portion structure or by contributing to minority stakes in unrestricted subsidiaries. As a result, under the credit agreement, such a subsidiary would no longer be „fully owned“ by the borrower.

The Chewy case (and other cases with limited subsidiaries) highlights the importance of the analysis of the provisions relating to the release of guarantees in the credit documentation, in particular the exclusion of subsidiaries, which are not 100% to avoid undesirable results. All that changed after the out-of-court transaction; unsecured bondholders were again returned to their original position. Their cashing out of Chewy is again subordinated to holders guaranteed under new asset promises. Indeed, their position has deteriorated, with petSmart also striving to accelerate the prepayment of the long-term loan. This will worsen the ability of non-guaranteed unsecured bonds to repay, as this is an additional use of cash for which PetSmart/Chewy was not previously responsible. In summary, bearer unsecured debt not only has access to the 63.5% of the pie, but is also subordinated to more than $5 billion and their credit support is enhanced by the prepayment of debt guaranteed by PetSmart. With respect to the very successful IPO itself, it is not certain that this benefit will affect unsecured bondholders, even though the pie in question has increased significantly (from $3 billion to $4 billion to $13 billion).