Welcome to the November 2020 edition of In the Know, Baker McKenzie's Leveraged Finance newsletter that takes a look at global market trends in various jurisdictions and areas of law relating to leveraged finance and high yield.

2020 has been a turbulent time for the global economy. A pandemic, geopolitical tension, trade wars and an impending 'Brexit' have created a fragile investment environment beset by ongoing volatility in both public and private debt and capital markets. This environment poses problems for many investors, debt or equity, as economic forecasts swinging between questionable optimism and extreme pessimism make it difficult for investors to price those assets that do come to market. But that is not to say that businesses are not in need of capital, nor that there is any absence of investors willing to provide it. Instead, rather than refusing to invest entirely, investors' approach in some situations has been to shift away from traditional debt and equity financing structures into more bespoke financing solutions better suited for such uncertain times.

Convertible loans are one such financing solution that appears to be finding favor with investors who are looking to deploy equity capital but are facing difficulties in doing so given the current market conditions. This article looks at some important considerations for parties in documenting a convertible loan, in particular, the extent to which the loan terms reflect a debt or an equity instrument and how those terms are impacted by the key commercial features of the investment


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