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Private equity firms are aggressively pushing to include language in loan documents that could give them room to pay themselves larger dividends from the companies they have bought, drawing a sharp rebuke from lenders.

In the past, loan documents usually capped exactly how much money a private equity firm could extract from one of its portfolio companies. Over time, those fixed amounts became malleable and were based on a percentage of a company’s earnings.

But in recent weeks, private equity firms have been attempting to take things one step further with the so-called high-water ebitda provision, which allows a company to use the highest earnings it generates over any 12-month period for critical tests that govern how much debt the company can borrow or the size of dividends it can pay to its owner, even if the business’s earnings have slid since reaching that high point.

KKR, Brookfield, Clayton, Dubilier & Rice and BDT & MSD Partners have all attempted to work the clause into loan documents, according to people briefed on the matter. All four firms declined to comment.

The terms have received intense pushback from would-be lenders, and in almost every case the language has ultimately been stripped out of the loan documents. But the fact that private equity-backed companies continue to push for the inclusion of the language has lenders on edge, with some fearful rival creditors will buckle and accept the provision.

According to lenders who saw drafts of the loan agreements, the terms were included in provisional loan documents backing KKR’s buyouts of asset manager Janney Montgomery Scott, valued at roughly $3bn in the deal, and $4.8bn purchase of education technology company Instructure, as well as Brookfield’s $1.7bn acquisition of a unit of nVent Electric. The clause was also put in provisional documents for refinancings by Wesco, which is owned by BDT & MSD Partners, and CD&R’s Focus Financial.

“It’s a really aggressive term,” one creditor said. “It’s a tough time to say, ‘I’m going to push the envelope further.’”

In one deal, RBC, which was lead underwriter on the $900mn term loan Brookfield was raising for its investment in nVent, told an investor that the bank had strong demand and if the language was an issue they should “vote with [their] feet”.

When enough investors passed, the high-water language got pulled from the loan document.

RBC did not immediately respond to a request for comment.

The fact the language is being tested is one sign of a potential imbalance in the loan market, a critical source of funding for private equity buyouts. With buyout volumes still down from the 2021 peak, investors have had fewer new deals to spread their funds across, leading to heightened competition around some loans.

“When you’re in a strong market, it’s usually harder to push back against” these terms, one banker involved in the Instructure financing said. But, he added, “they’re not surviving.”

The language has made it into at least one deal, a $2.1bn term loan for a commercial laundry operation known as Alliance Laundry, according to two people briefed on the matter. The company planned to use the proceeds to refinance debt and pay a $890mn dividend to its owner, BDT & MSD, according to S&P Global and Moody’s.

The provision reads that “the borrower may deem Ebitda to be the highest amount of Ebitda achieved for any test period after the closing date . . . regardless of any subsequent decrease in Ebitda after the date of such highest amount”, text seen by the Financial Times showed.

“If you didn’t ask for those terms in a negotiation you didn’t do your job,” one private equity executive said. “You always want to give maximum flexibility to your businesses.”

The high-water concept is not foreign to creditors; it is far more prevalent in European leveraged finance markets. And some bankers and lawyers argue the idea is rooted in common sense.

In certain loans, the amount of future debt a company can borrow or the sums it can dividend out to its owner is set as a percentage of earnings. Companies like that flexibility, because if they are growing they do not have to keep amending their loan documents if they would like to borrow or distribute more cash. Investors said savvy lawyers decided to push that concept one step further.

The high-water provision creates a threat for would-be investors, particularly if a business begins to slow before a loan matures.

“Over time the protections that were built into credit agreements by commercial banks have deteriorated,” said Tom Shandell, Investcorp Credit Management’s head of US CLOs and broadly syndicated loans. “Private equity [firms], which can afford the best and brightest attorneys, have little by little put terms into credit agreements that weaken the protections.”

Botswana is the model of democracy, good governance and pragmatic policy. In the words of The Economist Foreign Editor Robert Guest, the country has “been governed sensibly, cautiously, and more or less honestly” since its independence. In an age where democracies have been backsliding, Botswana has maintained its democratic reputation and continued to engage stakeholders down to the rural level of governance through its Kgotla system. This political culture is based on public meetings, community councils and traditional law courts. It continues to promote confidence in the country’s institutions and governance.

Though its strong principles have propelled the country through decades of political and economic success, Botwana’s responses to current struggles will determine whether this success will continue. The greatest challenges include the ruling party’s diminishing dominance and economic fault lines.

Botswana is the oldest continuous multiparty democracy in Africa. Its democratic roots trace back to the colonial era, when the British only exercised indirect rule over its Bechuanaland Protectorate. This allowed its indigenous institutions and leadership of its chiefs to flourish.

Seretse Khama, Botswana’s first president and pioneer of the Botswana Democratic Party (BDP), came to power at the country’s founding in 1966. While in office, he translated those effective tribal structures into Botswana’s post-independence governance. He prioritized the role of local leaders, upheld protections for citizens and secured freedom of expression for the media.

After his death in 1980, the legacy of the BDP has carried on — the party has won every general election since. Ironically, this means that despite Botswana’s status as a thriving multiparty democracy, only one party has ruled throughout the country’s 57-year history. Today, this legacy of BDP dominance is challenged by Khama’s son, Ian.

The BDP’s dwindling dominance

Upon his death, Seretse Khama passed the office to Vice President Ketumile Masire, who reigned from 1980 to 1998. Festus Mogae, his vice president starting in 1992, took command from 1998 to 2008. Then Ian Khama took over for him from 2008 to 2018. As per the constitution, after serving his maximum two five-year terms, Khama relinquished power to his Vice President, Mokgweetsi Masisi. Against the backdrop of this legacy of succession within the BDP, support for opposition parties had steadily grown, with 45% of the popular vote in favor of all opposition parties combined, against a dwindling 53% for the BDP.

A falling out between President Masisi and Ian Khama further fueled this rise in opposition support. Khama claims that Masisi has “totally undermined democracy, human rights, [and] the rule of law” since becoming president. Khama resultantly departed from the BDP to form a new political party: the Botswana Patriotic Front (BPF). The strife between these politicians came partly from Masisi’s refusal to appoint Ian’s brother, Tshekedi Khama, as vice president in 2019, among other requests that would give Ian a more active role in Botswana’s leadership.

This splintering of the BDP and Khama’s opposition against Masisi could challenge the party’s dominance ahead of October’s upcoming general elections. If the opposition parties are able to overcome factionalism and slightly increase their popular support, 2024 may mark the end of the 57-year legacy of the BDP’s rule in Botswana.

An end to diamond dependency?

Post-independence, Botswana’s consistent economic growth was driven almost entirely by its most precious resource: diamonds. Alongside the partially state-owned De Beers Group, Botswana established Debswana, a joint venture that quickly grew to become one of the world’s largest diamond suppliers by value. Botswana’s rich diamond reserves fueled decades of growth — the best in the region. However, the slow pace of diversification has kept Botswana’s economy dependent on diamond revenue.

In the first quarter of 2024, Debswana’s diamond sales fell 48% due to decreased demand and competition from lab-grown diamonds. This came with major consequences including rising unemployment and economic uncertainty. This uncertainty has only been exacerbated by the BHP mining group’s recent takeover attempt of Anglo American, the majority shareholder of De Beers. This triggered a hasty attempt by Anglo American to sell its majority stake in De Beers. The groups held many negotiations entailing complex restructuring that would directly impact their work in Botswana.

Although the acquisition attempt failed, it underscores the extent of exposure Botswana’s government has to De Beers and other major players in the diamond space. Not surprisingly then, despite its strong GDP per capita numbers, more nuanced economic indicators point in a different direction. For example, the country’s score for socioeconomic development in the Bertelsmann Transformation Index (BTI) has recently fallen from five points out of ten to four, due to extremely high income inequality. This is further underlined by a Gini index score of 53.3 and a high poverty rate of 38%.

Hoping to limit this diamond-dependency and trigger growth in high-value sectors that were stifled by the Covid-19 pandemic, Botswana has adopted the Reset Agenda. This project aims to accelerate economic diversification, empower youth and increase employment opportunities. Further, it attempts to promote local industry and economic self-sufficiency through import bans of fresh produce and water; the government seeks to use this to develop economic resilience and prepare for extreme weather conditions caused by climate change. Given the country’s high dependence on rain-fed agriculture, it is particularly vulnerable to changes in rainfall and droughts.

Simultaneously, Botswana’s strong financial institutions are promising indicators that the country has the tools required to overcome looming economic turmoil. Its robust banking system and relatively effective monetary stability from the Bank of Botswana exemplify this. Still, diversification and inequity remain pressing issues that will undoubtedly persist for years to come. They will be central issues in the upcoming general elections, which are shaping up to be the most competitive in the nation’s history.

[Lee Thompson-Kolar edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

The ebb and flow of the global economy means that, as some people migrate to the UK, others leave it, creating opportunities for international financial advice.

The new Labour government has confirmed that the current tax regime for non-UK domiciled individuals will be replaced with a residence-based test from 6 April 2025, so international advice firms can expect more enquiries.

If UK advice firms want to develop a global presence, how should they go about it?

Working out the options

Branching out internationally is not something that can be achieved on a whim. Advisers must obtain the relevant permissions to advise in different parts of the world, and know how to navigate the quirks of various tax jurisdictions.

We’ve all heard horror stories of people moving out [of the UK] and it not being what they expected

Qualifications and regulatory requirements can vary greatly between countries and the location in which an adviser is based will also have practical implications for the areas they can cover.

“If I wanted to live in the US, doing a load of Australian exams would be pointless,” says Chris Ball, co-founder of international advice firm Hoxton Capital Management.

“It would be impossible — or at least very difficult — to be on the same time zone. But I could do the UK and Europe from there.”

One way for UK firms to start out is by partnering another firm that is already established in the international advice market. But this market comprises a wide range of businesses, with varying reputations and ways of operating, which means that, to do it properly, there is no fast-track entry.

A basic UK Level 4 qualification would be expected by most companies now

“You’ve got companies that are very commission and sales driven; then you’ve got companies that are fee based and more financial planning focused,” says Ball.

Being selective

Ball says UK advisers should ensure they do their homework on prospective partners and be wary of whom they get into bed with.

“I think a lot of people do that, but we’ve all heard horror stories of people moving out [of the UK] and it not being what they expected,” he says. “No one wants to be in that position.”

According to Academy of Life Planning chief executive Steve Conley, the advice industry in some countries resembles that of the UK as it was 20 years ago, with product sales being incentivised by commission, and ‘bad apples’ appearing in different guises through phoenix firms.

You’ve got companies that are very commission and sales driven; then you’ve got companies that are fee based and more financial planning focused

Conley believes international advice firms should charge fixed fees for financial planning to “eliminate conflicts of interest, promote trust and advocate market integrity”. He suggests UK advice firms seek to partner a well-established firm that has highly qualified advisers and good, independent customer reviews.

“Don’t go by the awards they have won because there are a lot of vanity awards in this industry. They can be paid for rather than be voted for by the public,” he says.

A question of quality

Diane Bentley, a former nurse, lost half her pension when an international advice firm advised her to transfer her National Health Service pot to an overseas Qrops pension scheme when she moved to France. Now back in the UK, she runs a Facebook group providing support to others who have experienced bad offshore advice.

Bentley says that, because the international advice market is commission led, the incentive to get more UK pensions offshore becomes extremely risky.

The stereotype of a second-hand car salesman going to Dubai to become a financial adviser is pretty much gone

“It is poorly regulated and the advisers are badly trained. We want them trained to the UK standard — a minimum of Level 4,” she says.

“Why shouldn’t we expect the same standards as people onshore are getting?”

Ball acknowledges that the international advice market has had its problems, but says it is cleaning itself up.

“A basic UK Level 4 qualification would be expected by most companies now,” he says.

“And the stereotype of a second-hand car salesman going to Dubai to become a financial adviser is pretty much gone. The quality of people here in the Middle East and in Australia advising British expats is really good.”

This article featured in the September 2024 edition of Money Marketing. 

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Former President Donald Trump vowed to reinstate his travel ban that barred people from some predominantly Muslim countries and expand it to prevent refugees from war-torn Gaza from entering the U.S.

“I will ban refugee resettlement from terror infested areas like the Gaza Strip, and we will seal our border and bring back the travel ban,” Trump said Thursday evening in Washington at an event alongside Republican donor and billionaire Miriam Adelson.

“Remember the famous travel ban? We didn’t take people from certain areas of the world,” Trump added “We’re not taking them from infested countries.”

Trump initially put in place a version of his travel ban—one of the signature measures of his presidency—a week after taking office, triggering chaos at airports and sparking protests. Judges blocked the initial ban but changes to the policy eventually led to it being upheld by the U.S. Supreme Court, which rejected claims that it targeted Muslims.

Read More: How Far Trump Would Go

The Republican presidential nominee’s remarks came at an event focused on combating antisemitism, as he sought to enhance his outreach to Jewish voters before November’s election against Vice President Kamala Harris, his Democratic opponent.

Throughout the speech, Trump frequently suggested his backing for Israel should result in better political support among Jewish Americans.

He repeatedly complained he had not “been treated right” because polls showed a majority of Jewish Americans supported his opponent, and said that he believed “Jewish people would have a lot to do with a loss” in the presidential election.

“There’s no way that I should be getting 40% of the vote—I’m the one who is protecting you,” Trump said.

Trump at one point suggested that Israel itself should defeat Harris.  “More than any people on Earth, Israel has to defeat her,” he said. 

The former president added that Israel’s very existence could hinge on the election: “If I don’t win, I believe Israel will be eradicated,” he said.

Trump has repeatedly come under criticism for remarks asserting that American Jews ought to be unquestioningly supportive of the Israeli government.

In an interview in March, Trump accused Jewish people who support Democrats of hating their religion and Israel. Trump has sought to seize on divisions among Democrats over Israel’s war against Hamas, designated a terrorist group by the U.S. and European Union.

In a July radio interview, Trump attacked Harris, saying she “doesn’t like Jewish people” and that she had appeared annoyed during a meeting with Israeli Prime Minister Benjamin Netanyahu. When the radio host criticized Harris’ husband, Second Gentleman Doug Emhoff, calling him a “crappy Jew,” Trump responded “yeah.”

Emhoff is the first Jewish spouse of a U.S. president or vice president and has been a vocal advocate against antisemitism, including leading the administration’s strategy on the issue.

Read More: What to Know About Doug Emhoff, Prospective First Gentleman

After Trump’s speech on Thursday night, Amy Spitalnick, chief executive officer of the Jewish Council for Public Affairs issued a rebuke of his remarks. “Trump continues to label Jews who don’t support him as disloyal and crazy, to play into dangerous dual loyalty tropes, and to blame Jews for a potential electoral loss,” she said. “At the same time, he continues to normalize antisemitic extremism.” 

Trump has drawn criticism for interactions with antisemites and white supremacists, including a dinner at Mar-a-Lago in November 2022 with Nick Fuentes, a Holocaust denier.

A Pew Research Center survey conducted from Aug. 26 to Sept. 2 found 65% of Jewish registered voters support or are leaning toward Harris, with 34% for Trump.

The war in Gaza has presented a political challenge for Harris, with progressives and younger voters critical of President Joe Biden’s support for Israel. Harris, while backing Israel’s right to defend itself has expressed more empathy for Palestinian suffering than Biden during the war.

Publishers have been urged to “band together” to challenge big tech’s power over news industry revenues as an executive revealed the impact of recent Google updates at Mail Online.

Speaking at Press Gazette’s Future of Media Technology Conference last week, a group of industry experts warned there is a mismatch between how the news industry and tech platforms calculate value that means publishers are powerless addressing them alone.

Carly Steven, the global head of search engine optimisation (SEO) at Mail Online, said a June anti-spam update rolled out by Google had hit affiliate revenue from, for example, publisher voucher code and betting offers, which she said “effectively turned off a very significant revenue stream for a lot of publishers”.

“All of that content – that was really valuable, and we genuinely believe our readers find it very valuable too – it was just gone overnight.”

She said it spoke to a broader trend wherein publishers have less control in an increasingly unpredictable online landscape.