Being the biggest holder in a credit deal is normally just an advantage
Highlights
- In 2022, Wesco/Incora's majority noteholders amended their own indenture to issue themselves new priority notes, then used the voting power those notes granted to strip security from minority holders.
- A bankruptcy judge invalidated the transaction in 2024, but the ruling wasn't a clean win for minority holders.
- Rackspace introduced 'Uptier Exchange' protections in its Q1 2023 credit deal to block the same maneuver.
By Dan Wertman, originally published on the Noetica blog, now part of Thomson Reuters. December 2024.
Being the biggest holder at the table is normally just an advantage: more flexibility, more leverage, more ways to win. But what if the rules allowed the largest holder to issue itself even more chips, any time it wanted? At that point, why even play — the game is rigged.
That’s how Wesco/Incora’s minority bondholders felt in 2022.
The Wesco/Incora precedent
In 2022, a majority of noteholders in Wesco/Incora’s bonds amended the secured notes indenture to permit additional priority lien notes to be issued — but only to themselves. Using the supermajority voting power those new notes granted them, they then stripped the security from the remaining noteholders. In effect, the “big stack” unilaterally issued itself more chips out of other players’ stacks.
A bankruptcy judge found for the aggrieved minority noteholders and invalidated the transaction in mid-2024. But the case wasn’t a clean win for minority holders across the board: this type of uptier transaction has produced genuinely split outcomes in court, with rulings turning on deal-specific contract language rather than a clear market-wide rule.
The market’s response
In response, Rackspace’s Q1 2023 credit deal introduced “Uptier Exchange” protections, which disregard consents from holders for:
- Incremental debt provided by an affiliate of the borrower;
- Transactions without a bona fide business purpose; or
- Transactions with the purpose of changing voting thresholds.
These terms hadn’t made further advancements into the public credit markets as of Q3 2024 — but given how quickly the market has moved on comparable liability management protections in other areas, Uptier Exchange language is one to watch rather than dismiss.
For more deal-term benchmarking like this, explore the latest Capital Markets Radar Report from Noetica, now part of Thomson Reuters.
