Lenders are pushing back against private equity firms seeking to weaken key investor protections in leveraged debt markets. 

Despite a strong credit market favoring borrowers, creditors are refusing to drop safeguards that prevent aggressive restructurings.

These protections, known as the “J Crew,” “Serta,” and “Chewy” clauses, block maneuvers that strip lenders of asset claims. Private equity firms, including KPS Capital Partners, Main Post Partners, and Triton Partners, have faced resistance after attempting to exclude them.

KPS Capital Partners had to reinstate these clauses in its €1.1bn ($1.2bn) financing for Ineos Composites after lenders pushed back. Flynn Group, owner of Applebee’s, Taco Bell, and Pizza Hut franchises, also had to reintroduce these protections in a refinancing deal. Triton Partners reassured investors by including all three safeguards in its €380m loan for Trench Group’s refinancing.

While private equity firms continue to secure favorable debt terms, lenders are holding firm on structural protections. Borrowers have successfully negotiated debt-funded dividends and loan repricings at lower rates, but credit investors refuse to compromise on clauses that protect them in distressed situations.

Despite resistance, private equity firms remain aggressive. Clayton Dubilier & Rice made the J Crew blocker optional in its €8.65bn financing for Opella, leaving its inclusion up to investor demand. Meanwhile, some sponsors are pushing for “high-watermark EBITDA” clauses, allowing companies to raise debt based on peak earnings rather than current performance.

The ongoing battle highlights shifting dynamics in leveraged finance. While private equity firms still wield significant influence, lenders are proving they can push back on terms that could leave them vulnerable in future restructurings.