✒ Traditionally the “change of control” provision in a loan document requires the debt to be paid off, at par, when a company is sold, and buyer of the company in debt have to make new/re-financing arrangements. In a takeover situation, the creditors have the opportunity to change the terms if there are new risks after the takeover (e.g. by demanding higher interest rates or imposing additional conditions).
Lately, the private equity groups have been able to insert the so-called “portability language” into loan documentation, which allows debt issuers to bypass the change of control covenant, and directly transfer the debt to the new owner.
Making the debt “portable” pushes the risks to the lenders and makes it easier for private equity to sell their portfolio companies. It also means less business for banks as fewer fees are involved for debts to be transferred instead of refinanced.
Debt investors are not happy it about it but they apparently have little choice. Given that other assets offer much lower interest rates, there are a lot of investors chasing a limited amount of such loans.