Sealed Air tightens leverage covenants and restricts payments basket on $7.15 billion cross-border CD&R leveraged financing as lender protections sharpen
Sealed Air Corporation, the global packaging group, has revised terms for the second time on its $7.15 billion cross-border leveraged financing backing Clayton, Dubilier & Rice (CD&R)'s acquisition of the business. The repricing involves a meaningful tightening of lender protections, reflecting pushback from the institutional investor syndicate amid elevated credit market caution in Q1 2026. The first lien leverage ratio — a key covenant that caps how much debt can be incurred relative to a company's EBITDA (earnings before interest, taxes, depreciation, and amortisation, a proxy for operating cash flow) — was reduced from 5.50x to 5.30x. The secured leverage ratio was cut from 6.25x to 6.05x, and the total leverage ratio from 6.75x to 6.55x. These are incurrence-based covenants, meaning they apply when the borrower takes on new debt rather than being tested on a rolling basis. The restricted payments basket — which governs how much cash CD&R can extract from the business via dividends or distributions — was reduced from the greater of $1 billion or 75% of EBITDA to $665 million or 50% of EBITDA. The builder basket formula, which allows additional capacity to grow over time based on financial performance, was also tightened from a 'greatest of three' to a 'greater of two' calculation. The bookrunner group includes Wells Fargo, Citi, Mizuho, RBC, Credit Agricole CIB, Deutsche Bank, HSBC, Jefferies, Natixis, Rabobank, SMBC, TD, Truist, , , , and . The issuer vehicle is . Sealed Air carries issuer ratings of B+/B1 from S&P and Moody's respectively.
Why this matters
Back-to-back covenant tightenings on a flagship leveraged buyout (LBO — a deal financed primarily with debt) signal that the institutional loan market is reasserting creditor protections that eroded during the easy-money era of 2020–2022, when sponsors routinely extracted borrower-friendly covenant packages. The restriction on the restricted payments basket directly limits CD&R's ability to dividend recapitalise the company — a primary mechanism PE sponsors use to generate returns before exit. This tightening is particularly significant given the $7.15 billion deal size; the dynamics on this transaction will likely set precedents for comparable cross-border LBO financings governed by New York and English law. For London-based banking associates, the key legal work involves negotiating the incurrence covenant package in the facilities agreement and the indenture for any high-yield bond tranche, with careful attention to permitted payments and restricted payments definitions.
On the Ground
A trainee on the lender side of this financing would manage the CP checklist for the facilities agreement, review security document schedules to confirm collateral coverage against the revised leverage ratios, and coordinate legal opinion letters from US and European counsel in the multi-jurisdictional bookrunner group.
Interview prep
Soundbite
Twice-revised covenants on a $7bn LBO show lenders are recovering negotiating power lost during the zero-rate era.
Question you might get
“What is the practical difference between maintenance and incurrence covenants in a leveraged loan, and why does it matter to a PE sponsor which type is used?”
Full answer
Sealed Air's CD&R leveraged financing has had its covenant package tightened for the second time, with first lien leverage reduced to 5.30x and the restricted payments basket capped at $665 million. This matters because it reflects a structural shift in the leveraged loan market: investors are no longer accepting the borrower-friendly 'cov-lite' documentation that dominated deal flow from 2019 to 2022, and sponsors are being required to accept materially tighter financial discipline. The broader trend is a repricing of credit risk following private credit market turbulence, with institutional lenders — particularly the large cross-border bookrunner syndicates — using deal repricing to reassert influence over documentation standards. This will sustain elevated demand for leveraged finance lawyers who can navigate complex, multi-jurisdictional covenant negotiations.
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