The coronavirus (COVID-19) emergency has led to the debt of many companies in private equity portfolios trading at a significant discount. As a result, an increasing number of private equity sponsors are strongly considering whether to purchase portfolio company debt in the secondary market as an investment opportunity. At the same time, the portfolio companies themselves are considering repurchasing their own debt to accomplish the twin goals of increasing equity value by retiring debt at a discounted price and reducing leverage during this volatile period in the global financial markets.

This memo highlights several legal issues for private equity sponsors and their portfolio companies to consider in evaluating a potential purchase of portfolio company debt.

If you have any questions regarding the matters covered in this publication, please reach out to any of the lawyers listed below or your usual Davis Polk contact.

This communication, which we believe may be of interest to our clients and friends of the firm, is for general information only. It is not a full analysis of the matters presented and should not be relied upon as legal advice. This may be considered attorney advertising in some jurisdictions. Please refer to the firm's privacy notice for further details.

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