Hard not to dox myself without also explaining why I know this but having been one of the depressed sops sending across term sheets until the wee hours of the morning for years at a large firm, I can attest to the fact that the RP covenant preventing restricted payments is perhaps the biggest news to come out of the GME 8-K filing.
To be clear, no longer being subject to a full covenant package with banks that may or may not be hostile to your best interests is AMAZING on the whole and a smart move by GME to terminate early. And so there are a lot of advantages that come with this freedom.
But the most important one in my view is that GME is no longer restricted from making Restricted Payments. What are Restricted Payments you ask? Well lucky for us the loan agreement is available on EDGAR and is defined as:
"“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity finance charge of Holdings or any of its Restricted Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such Equity finance charge, or on account of any return of capital to Holdings’ or such Restricted Subsidiaries’ stockholders, partners or members (or the equivalent Persons thereof) other than (i) the payment of compensation in the ordinary course of enterprise to holders of any such Equity Interests who are employees or service providers of Holdings or any Restricted Subsidiary solely in their capacity as employees or service providers and (ii) other than payments of intercompany indebtedness permitted under this Agreement, unless such payments are made in the form of profits distributed or other distributions that would otherwise be classified as Restricted Payments hereunder."
I'm not going to bore you with the details of financial law and the existing exceptions carved out in Sec. 9.6 of the agreement (copying below for any nerds) because frankly even young attorneys don't want to learn this shit and we pay them. But the key words here friends are DIVIDEND and REPURCHASE OF EQUITY INTERSTS.
I’m not clairvoyant and won’t pretend to know if these are imminent ideas or just more tools now in Cohen’s toolbox, but I know that being able to make RPs is a huge new freedom for this firm (as well as all of the other covenants it is no longer subject to).
If there really is an issue of fraudulent shares being sold short, I think this will help to site that problem.
[The below are EXCEPTIONS to the blanket ban on RPs, so these are examples of what GME could do under the agreement. Confusing logic but the specificity of what it can do thereby defines what it cannot do.]
SECTION 9.6 Restricted Payments. Declare or make any Restricted Payment, except:
(a) each Restricted Subsidiary may declare and make Restricted Payments to Holdings and to its other Restricted Subsidiaries (and, in the case of a Restricted Payment by a non-wholly-owned Restricted Subsidiary, to Holdings and any of its other Restricted Subsidiaries and to each other owner of Equity Interests of such Restricted Subsidiary based on their relative ownership interests of the relevant class of Equity Interests);
(b) Holdings and each of its Restricted Subsidiaries may declare and make dividend payments or other distributions payable solely in the Equity Interests (other than Disqualified Equity Interests not otherwise permitted bySection 9.3) of such Person;
(d) to the extent constituting Restricted Payments, Holdings, the Borrowers and the Restricted Subsidiaries may enter into and consummate transactions expressly permitted by any provision ofSection 9.2(other thanSection 9.2(e)) ,9.4or9.8(other thanSection 9.8(a)or(j));
(e) repurchases of Equity Interests in Holdings deemed to occur upon exercise of stock options or warrants or similar rights if such Equity Interests represent a portion of the exercise price of such options or warrants or similar rights;
(f) Holdings may pay for the repurchase, retirement or other acquisition or retirement for value of Equity Interests of Holdings held by any future, present or former employee, director, consultant or distributor (or any spouses, former spouses, successors, executors, administrators, heirs, legatees or distributees of any of the foregoing) of Holdings, the Borrowers or any of their Restricted Subsidiaries upon the death, disability, retirement or termination of employment of any such Person or otherwise pursuant to any employee or director equity plan, employee or director stock option plan or any other employee or director benefit plan or any agreement (including any stock subscription or shareholder agreement) with any employee, director, consultant or distributor of Holdings, the Borrowers or any of their Restricted Subsidiaries in an aggregate amount after the Closing Date not to exceed $5,000,000 in any calendar year with unused amounts in any calendar year being carried over to the next two succeeding calendar years;providedthat such amount in any calendar year may be increased by an amount not to exceed the cash proceeds of key man life coverage policies received by Holdings or its Restricted Subsidiaries after the Closing Date;
(g) any payment in connection with (i) any Permitted Bond Hedge Transaction or (ii) the settlement of any Permitted Warrant Transaction by (A) delivery of shares of Holdings’ common equity upon settlement thereof or (B) by (1) set-off against the related Permitted Bond Hedge Transaction or (2) payment of an early termination amount in common equity of Holdings upon any early termination thereof;
(h) Holdings may pay cash in lieu of fractional Equity Interests in connection with any dividend, split or combination thereof or any Permitted Acquisition;
(j) repurchases of Equity Interests (i) deemed to occur on the exercise of options by the delivery of Equity Interests in satisfaction of the exercise price of such options and (ii) in consideration of withholding or similar Taxes payable by any future, present or former employee, director, manager or consultant (or any spouses, former spouses, successors, executors, administrators, heirs, legatees or distributees of any of the foregoing), including deemed repurchases in connection with the exercise of stock options;
(k) without duplication of any other clauses of thisSection 9.6, other Restricted Payments that, together with any prepayment, redemption, defeasance or other satisfaction of any Indebtedness made pursuant to the General Restricted Debt Payment Basket, do not exceed in the aggregate (for all such Restricted Payments and prepayments, redemptions, defeasances or other satisfaction of Indebtedness made pursuant to the General Restricted Debt Payment Basket) at the time of such Restricted Payment and after giving Pro Forma Effect thereto in an amount equal to (i) the greater of (1) $30,000,000 and (2) five percent (5.0%) of Consolidated EBITDA as of the most recently ended Test Period on a Pro Forma Basisminus(ii) the aggregate unutilized amounts under the General Restricted Payment Basket and the General Restricted Debt Payment Basket, which have been reallocated by the Lead Administrative loan Party to make Investments pursuant toSection 9.2(m)(thisclause (k), the “General Restricted Payment Basket”);
(l) so long as no Event of Default exists or would result therefrom, the distribution, by dividend or otherwise, of the Equity Interests of, or debt owed to Holdings or a Restricted Subsidiary by, Unrestricted Subsidiaries (other than the Equity Interests of any Unrestricted Subsidiary, (i) the primary resources of which are cash and/or Cash Equivalents and/or (ii) the resources of which include any Material Intellectual Property, in each case, which were contributed to such Unrestricted Subsidiary by Holdings and/or any Restricted Subsidiary).