Direct Lending Credit Agreements: How Sponsor Friendly Terms Imported from the Broadly Syndicated Loan Market Expand Covenant Headroom

Jeff Norton, Partner | Pillsbury

Jeff Norton guides clients through complex public and private finance matters, including leveraged credits, direct lending, structured finance, restructurings and special situations, with extensive experience in the U.S., UK, European, Asian and Latin American markets. He advises funds, corporates, financial institutions and private equity sponsors on leveraged finance, acquisition finance, high yield note issuances, convertible note financings, private placements, debt tenders and exchange offers, asset-based credits, infrastructure finance, distressed debt, workouts and restructurings, and liability management. Before joining Pillsbury he was a partner in the New York office of an international law firm, where he also chaired the Corporate Finance practice.

• Education & Credentials

Jeff earned his J.D., cum laude, from Cornell Law School in 1985, where he was a Senior Editor of the Cornell Law Review. He holds an M.A. (1982, cum laude) and a B.A. (1981, with honors) from the University of Washington. He is admitted to practice in New York.

• Recognition & Leadership

Jeff has been recognized by Best Lawyers (published by BL Rankings LLC) for Banking and Finance Law each year from 2018 through 2027. At his prior firm he served as chair of the Corporate Finance practice.

• Professional Involvement

Jeff is a long-running contributor to the ICLG Lending & Secured Finance guide, where he has written the annual private credit and middle market update since 2018, including “2025 Private Credit and Middle Market Update: Developments and Trends” (2025), “2024 Private Credit and Middle Market Update: Rising Returns and Increasing Risk of Default Driving Priming Liability Management Structures” (2024), “2023 Private Credit and Middle Market Update: Special Situations Analysis, Readying for a Recession” (2023), and earlier editions covering the expanding global private credit market and financing the middle market. His covenant-focused writing includes “Translating High Yield to Leveraged Loans: Avoiding Covenant Convergence Confusion” (ICLG, 2016) and “The Last Leverage Test?” (IFLR, July 11, 2016), and he has also published “Bankruptcy Court Ruling Imposes Lender Liability” for the Harvard Law School Bankruptcy Roundtable (May 2022) and the “Secured Lending Comparative Guide for the United States” for Mondaq (February 2022). His speaking engagements include the Strafford CLE webinars “Pre-Chapter 11 Priming Transactions: Creating Liquidity, Delaying Maturities, Removing Covenant” (2024) and “Structuring Term Loan B Transactions: Combining High Yield Financing with Conventional Bank Loans” (March 27, 2018).

• Experience

Jeff’s notable representations, before and since joining Pillsbury, center on sponsor-backed and fund-side credit. He represented a leading hedge fund in $875 million of recurring revenue credit facilities for the acquisition of a software identity business, a REIT in $2 billion of syndicated corporate credit facilities, and a leading owner and operator of U.S. shopping centers in the restructuring of a $1.5 billion credit facility. He has also represented a leading global alternative investment manager in a $650 million growth capital line for a U.S. construction lending business and in a $200 million growth capital line for a distributed energy provider, a multi-strategy hedge fund in over $1 billion of financing for the acquisition of a Brazilian oil refinery, a leading hedge fund and asset manager in warehouse facilities and servicing arrangements for the acquisition of over $500 million of consumer loans, a global construction and consulting business in a 1 billion multi-currency syndicated loan facility and the issuance of $700 million in senior notes, and a leading telecommunications company in an offer to purchase over $1 billion in outstanding bonds.

Joel M. Simon, Partner | Pillsbury

Joel M. Simon leads Pillsbury’s Bank & Leveraged Finance Practice Group. He represents banks, direct lenders and other providers of capital, as well as borrowers and issuers, in first and second lien loans, high-yield and investment-grade debt, asset-based loans and fund finance, across U.S. and cross-border transactions spanning leveraged, acquisition and commercial finance, private debt and equity investments and joint ventures, special situations, and corporate and financial restructurings. He frequently advises lenders and borrowers on the U.S. aspects of multijurisdictional finance matters and has substantial experience in sectors including medtech, fintech and technology, energy, telecommunications, government contracting, building materials, real estate, hotels and hospitality, aviation, retail and financial services.

• Education & Credentials

Joel earned his J.D. from Cornell Law School in 1985 and his B.S. from Cornell University in 1982. He is admitted to practice in New York.

• Recognition & Leadership

Joel is the leader of Pillsbury’s Bank & Leveraged Finance Practice Group and has been recognized as a leading finance lawyer by Chambers Europe and Legal 500 EMEA. He hosts the Pillsbury Industry Insights Podcast. Having lived and worked in New York, London and Paris, he brings experience across a multiplicity of business and regulatory environments.

• Professional Involvement

Joel’s writing on leveraged and secured lending includes “COVID-19 and Leveraged Finance: Some Issues to Consider” (March 24, 2020), “Asset-Based Lending in England and the U.S.: A Comparative Insight for Cross-Border Transactions” (April 8, 2026), “California Court Tentatively Rejects ‘True Lender’ Claim in Bank-Fintech Partnership Dispute” (March 23, 2026) and “Loan Market Association Publishes Green Loan Terms, Smoothing Path for Green Finance in 2025” (January 17, 2025). He co-authored an extended series of 2020 client alerts on the Main Street Lending Program for borrowers, lenders, nonprofits and small and medium-sized businesses, as well as alerts on the CARES Act Treasury loan programs, the U.S. International Development Finance Corporation, distressed real estate options beyond PPP loans, and New York mortgage forbearance regulation. His blog posts include “NFTs, Web 3.0 and the Technologies Enabling the Metaverse” (December 1, 2021), “Hotels & Hospitality: Trends and Recovery” (May 6, 2021) and “A Deep Dive into the Corporate Transparency Act” (April 22, 2021).

• Experience

Joel was the lead finance partner on the financing of an acquisition of a subsidiary from a large multinational company, involving approximately $250 million of debt financing through the conversion of a secured intercompany note into a secured seller note and a new multi-draw term loan provided by the seller. He was a key member of the cross-office Pillsbury team advising Sinclair Broadcast Group and its subsidiaries on the acquisition of a regional sports network business from The Walt Disney Company, involving more than $10.0 billion of aggregate debt financing. He co-led the development and implementation of an innovative back-to-back loan structure, supported by insurance, that enabled an investment grade rating for debt financing provided by institutional lenders to technology companies with valuable intellectual property assets, and he advised Immersion Corporation (Nasdaq: IMMR) in its definitive agreement with Barnes & Noble Education Inc. (NYSE: BNED) under which BNED receives $95 million in new equity capital through a $50 million Immersion-led investment and a $45 million fully backstopped equity rights offering.

SESSION 1 – Building Covenant Headroom: EBITDA Add-Backs, Cash Netting and Debt Definitions, Covenant Testing and Timing, and Grower and Builder Baskets | Jeff Norton & Joel M. Simon | 2:30pm – 3:30pm

This session opens the program’s issue-by-issue examination of the sponsor-friendly terms associated with the broadly syndicated loan (BSL) market that are increasingly appearing in direct lending transactions, particularly for larger sponsor-backed credits. It covers EBITDA add-backs, cash netting and debt definitions, covenant testing and timing, and grower and builder baskets, examining sponsor and lender perspectives on each through illustrative drafting provisions and numerical examples, and showing how negotiated definitions and calculation mechanics interact to affect covenant headroom, financing flexibility and lender protections.

BREAK | 3:30pm – 3:40pm

SESSION 2 – Expanding Capacity and Preserving Liquidity: Basket Stacking and Reclassification, Incremental Debt, PIK Interest, Equity Cures, and the Negotiation Matrix | Jeff Norton & Joel M. Simon | 3:40pm – 4:40pm

This session completes the issue list with basket stacking and reclassification, incremental facilities and incremental equivalent debt, payment-in-kind (PIK) interest and equity cures, again from sponsor and lender perspectives through illustrative drafting provisions and numerical examples. It then distinguishes provisions that support covenant compliance despite declining operating performance from those that expand transaction capacity or preserve liquidity while increasing debt, evaluates the credit consequences of the overall package, and closes with a ranked issues list and negotiation matrix attendees can use to prioritize key terms.