Key Terms, Process Considerations and Potential Issues When Providing Rescue Capital to Distressed PE Portfolio Companies (Part Two of Two)

As companies continue to struggle after the coronavirus pandemic effectively closed down large portions of the economy, PE sponsors are rushing to provide rescue capital (i.e., salvation investments) to keep their portfolio companies afloat. In contrast to initial investments, however, it is a lot more complicated to layer debt or equity upon a company’s existing capital stack, which means there are several attendant factors for PE sponsors to consider. Failure to properly weigh those issues could introduce timing problems, dilution of existing LPs, conflicts of interest from related-party transactions and other unwanted effects. To help PE sponsors avoid potential missteps when providing rescue capital to their portfolio companies, the Private Equity Law Report interviewed Dechert partners Samantha Koplik and Nazim Zilkha. This second article in a two-part series examines procedural issues and potential conflicts of interest, among other topics, that PE sponsors need to address before securing rescue capital for a portfolio company. The first article described the various types of salvation investments sponsors can select, which scenarios favor certain types of capital and how rescue capital in the coronavirus pandemic is unique compared to previous economic downturns. See “SEC Examination Topic Trends: Minority Stake Transactions, Co‑Invest Conflicts and Other Concerns (Part Two of Two)” (Mar. 26, 2019).

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