Portability
LBOA provision letting existing debt survive a change of control instead of falling due, usually subject to a leverage test.
Also written: portable capital structure, portable financing
The default position in leveraged finance is that a change of control is a repayment event. A loan becomes mandatorily prepayable and a high yield bond gives investors a put at 101, so selling the company forces the buyer to refinance the entire structure on the day it completes.
A portable structure disapplies that for one sale, provided stated conditions are met. The usual condition is a leverage test: the debt travels only if pro forma net leverage at completion is at or below an agreed level. There is frequently also a time limit and a restriction to a single use.
Why it is worth paying for is a point about the sale price rather than about the financing. A buyer inheriting a package agreed in a tighter market does not have to underwrite today's cost of debt, so the same equity story supports a higher bid. The seller captures part of that in the price.
Two honest qualifications. It is negotiated rather than standard, and it is conceded most readily when lenders are competing hardest, which is exactly when refinancing would have been easy anyway. And lenders dislike it for a good reason: it removes their exit from a credit whose owner, strategy and appetite for risk have all just changed.
Worked example
A sponsor sells in year three. Without portability the buyer must refinance 250 of debt at whatever the market charges on completion.
If credit spreads have widened materially since the original financing, the buyer prices that higher coupon into what it can pay, and the seller absorbs it through a lower equity price.
With portability, and pro forma leverage inside the agreed test, the existing package transfers with the company. The seller has effectively sold the financing as well as the business, and the value of doing so is highest precisely when new debt is hardest to raise.