In two recent posts I discussed (i) the structure of unitranche facilities and their growing acceptance in the market and (ii) the uncertainty inherent in these facilities because they have not been tested by a troubled economic environment. Below I address certain of the substantive differences between common terms contained in agreements among lenders (or AALs) found in unitranche transactions and more traditional intercreditor agreements between first lien and second lien lenders. Note that because the unitranche market continues to develop, the standardization found in intercreditor agreements does not yet exist for AALs and many terms remain negotiable. Continue reading Unitranche Facilities – Continued Growth in an Uncertain Market: Part III
In an earlier post, I generally discussed the structure of unitranche facilities and their growth in popularity among borrowers since the credit crisis. Of course, this explosive growth has occurred in a relatively benign economic environment. As a result, the inherent limitations of the structure have not been tested by a downturn or, in turn, by bankruptcy courts. Lenders exploring the market must do so with some caution and a fulsome understanding of the rights of, and limitations on, “first out” lenders in a distressed scenario.
By their nature, unitranche debt does not easily allow senior lenders to silence junior lenders in times of distress based on collateral valuation alone because all the borrower’s obligations are secured by a single lien. Instead, protections must be carefully drafted into the AAL. These protections will include, for e.g., waivers of the ability of “last out” lenders to vote in favor of a contradictory plan of reorganization, restrictions on their rights to object to asset sales, and limitations on the rights of such lenders to provide post-petition financing. Similar provisions contained in first lien/second lien intercreditor agreements have been deemed enforceable “subordination provisions” in the context of a bankruptcy. The same should generally hold true for AALs. If an intercreditor dispute arises in the context of a borrower’s bankruptcy, lenders should be mindful that a bankruptcy court might decline to accept jurisdiction (particularly if the borrower is not a party to the AAL), leaving an unrelated state or federal court to address the matter. Continue reading Unitranche Facilities – Continued Growth in an Uncertain Market: Part II
A variety of factors have fed the rapid growth in the market for unitranche loans during the last few years. These structures — a hybrid of a traditional single lien and a first lien/second lien facility – began in the lower middle-market and are now commonly found in loan transactions exceeding $100 million.
In this first in a series of posts addressing this quickly developing market, I discuss below the basic structure of unitranche facilities. In later posts I will address certain of the intercreditor issues that necessarily arise when negotiating unitranche loans and the complexities that may be presented by the unitranche structure in a market downturn. Continue reading Unitranche Facilities – Continued Growth in an Uncertain Market: Part I