Unitranche Agreement Among Lenders

March 4, 2019 – The LSTA is pleased to announce that the new form of agreement between LSTA lenders will be published in final form. This AAL form must be adapted to a synthetic financing of the first pledge/second title. The context is that, in the case of increments, different tranches of debt are grouped into a single tranche of debt, which is transferred to the borrower under a credit contract. The borrower pays a mixed interest rate to lenders, and lenders agree to create in a separate agreement between the lenders the first and last tranches. Unitranche`s structures are complicated and there are and will be a large number of structures on the market. A single form is not able to identify all these different structures, so for the purposes of this project, it has been decided that this form will be designed for a road centre, the first synthetic right to pledge/second funding. Our intention is that this form serves as a useful design resource, and we have included different design options with footnote explanatory notes. The publication of this form represents an exciting new step for the LSTA, as it is the first offer of documents for lending to SMEs. The unit credit market increased as the parties used the category structure to increase the number of transactions and large transactions, with volume reaching a record $10.7 billion in the third quarter of 2019 and the average credit size reaching $235,000,000 in the same quarter1. Unitranche`s loans were particularly attractive to medium-sized borrowers, with annual sales of less than $100,000,000 and EBITDA of less than $50,000,000.2 Originally, the entry credit market was dominated by a smaller group of direct a-bank lenders.

Lenders are growing in number and borrowers have more often benefited from these loans. The full effects of the COVID 19 pandemic on this trend have not yet occurred. Credit markets have cooled and there are signs that direct credit market transactions tend to be higher prices and more favourable credit documentation3 An AAL generally sets the lender`s necessary consents to modify, modify or remove the terms of credit documents. The AAE provisions apply in addition to the credit contract coordination requirements. They are intended to give FO and LO lenders a say in certain amendments that are subject to their interests by granting class voting rights. Voting rules and protection are very different from one deal to another and are often heavily negotiated. An input structure can also be used by banks and other lenders in a “work-out” scenario, if the agreement was not originally intended as a class loan. A party can get their money into a troubled agreement and use an AAL to allocate interest and other rights in a way that encourages the party to invest in the troubled agreement. Under an AA, LO lenders generally waive certain secured rights of creditors in favour of FO lenders as long as certain conditions are met or guarantees are granted to OL lenders. LO lenders rarely grant a broad waiver of their secured rights to creditors and almost never agree to give up their unsecured rights to creditors. An AAA will also address key aspects of borrower contraction. The AAA will deal with a wide range of bankruptcy issues, including DIP financing, cash guarantees, voting rights, waivers, sales of guarantees, credit offers, distribution rights (including securities), plan classification, provisions for first out lender interest payments and avoidance issues (i.e., preferential and fraudulent issues).