How My Landlord Invented Liability Management

If you can’t fix the gas line, offer a rent discount. If you can’t tighten covenants, add EBITDA.

In my first NYC apartment, halfway into my lease they shut off the gas to do “9 months of required repairs to the system.”

Now, I’m not much of a cook, but with no oven and no stove for 9 months, I seriously thought about moving.

Then, I got a call from my landlord: “What if I knock $200 off rent, get you an electric oven, and send you a hot plate?”

This is a “structure for economics” tradeoff: and it’s exactly what’s happening right now in capital markets deals.

Noetica’s data tells a fascinating story:

➡️ EBITDA cost savings add-backs were included in almost 50% of deals in Q2, up from 37% in Q1.

➡️ 30% of deals included unlimited add-backs (vs. near-zero in Q3 ‘24).

➡️ Over 80% of deals with EBITDA add-backs met or exceeded a 20% cap.

Translation: borrowers can now add more “projected savings” to their financial calculations, giving them economic headroom. At the same time, lenders are securing liability management blockers at higher rates than we’ve ever tracked: J. Crew terms were included in 38% of deals and Anti-Petsmart terms were included in 25% of deals.

This market is evolving, and it’s showing us something: trading structure for economics works not only for landlord negotiations, but for billion-dollar capital markets deals too.

My response to my landlord? I re-signed the lease and got really good at cooking omelettes on a hot plate…