Key Takeaways
- • Investors have started reviewing bond documentation to determine whether they have agreed to clauses that let borrowers pause default remedies if a default is attributed to AI disruption, according to two people with knowledge of the matter reported by Bloomberg.
- • The reviews follow a Bloomberg report by Eleanor Duncan and Kat Hidalgo in London on private equity firms seeking to add force majeure-style provisions to buyout financing.
- • The clauses, which would allow borrowers to stop the clock on addressing defaults, represent a new contractual tactic that lenders are only now scrutinizing.
Summary
Money managers are beginning to examine their existing bond documentation to determine whether they have unknowingly accepted a provision that would allow borrowers to halt the clock on addressing defaults if those defaults are deemed to have been caused by artificial intelligence disruption, according to two people with knowledge of the matter cited by Bloomberg.
The scrutiny follows a Bloomberg report by Eleanor Duncan and Kat Hidalgo in London describing private equity firms that are attempting to add new force majeure-style clauses to buyout funding arrangements. Force majeure provisions typically excuse parties from contractual obligations when extraordinary events beyond their control occur, and applying that logic to AI disruption represents a novel extension of the concept in leveraged finance.
The development matters for private credit and leveraged loan investors because a clause that suspends default remedies would alter the timing and recovery dynamics lenders rely on when a borrower underperforms. The primary source does not indicate which specific transactions contain these provisions or the number of managers that have identified them, and the broader market adoption of the language remains unclear from the available reporting.
The scrutiny follows a Bloomberg report by Eleanor Duncan and Kat Hidalgo in London describing private equity firms that are attempting to add new force majeure-style clauses to buyout funding arrangements. Force majeure provisions typically excuse parties from contractual obligations when extraordinary events beyond their control occur, and applying that logic to AI disruption represents a novel extension of the concept in leveraged finance.
The development matters for private credit and leveraged loan investors because a clause that suspends default remedies would alter the timing and recovery dynamics lenders rely on when a borrower underperforms. The primary source does not indicate which specific transactions contain these provisions or the number of managers that have identified them, and the broader market adoption of the language remains unclear from the available reporting.
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