Investors are taking the fight against an assault on leveraged loan documentation to the courts as more private equity-backed companies, such as troubled retailer PetSmart, seek flexibility that could lead to raising new debt, Reuters reported. Private equity firms have been able to exploit red-hot investor demand for floating rate U.S. leveraged loans and weaken loan documentation as demand continues to outstrip supply, but this has already produced at least two court cases as investors fight back. Legal conflicts have erupted among lenders to US retailers such as Not Your Daughters Jeans and J Crew in the last 12 months, as issuers added extra debt by exploiting loopholes in their credit documents. PetSmart’s owners took steps on June 4 to potentially create additional flexibility by creating a new unrestricted subsidiary and transferring 16.5 percent of its online company Chewy into the new facility.
