If a triggering event continues, LO lenders with a certain portion of the OL tranche are generally entitled to acquire FO bonds, usually at face value and often plus certain prepayment premiums. For some trades, the redemption trigger is any default event, but it is usually tighter. Common triggering events are an acceleration or a payment or bankruptcy event or a violation of a maximum FO leverage ratio. Some OL lenders want to be able to exercise the right of redemption when a payment cascade trigger is effective. Under the Bankruptcy Code, a subordination agreement is just as enforceable in a bankruptcy as it is outside the bankruptcy. Bankruptcy courts generally treat an AAL as a subordination agreement and enforce it. However, some provisions could violate the basic bankruptcy guidelines, for example .B. in terms of classification and voting. 4. March 2019 – The LSTA is pleased to announce that the new form of agreement between the LSTA`s lenders will now be published in its final form. This form of LAA should be suitable for synthetic funding of the first privilege/second privilege.
Background: In unitranche financing, different tranches of debt are combined into a single tranche of debt, which is granted to the borrower under a loan agreement. The borrower pays a mixed interest rate to the lenders, and the lenders agree to create first and last out tranches in a separate agreement between the lenders. Unitranche structures are complicated, and there are and always will be a variety of structures on the market. A single form is not able to enter all these different structures, so for the purposes of this project, it was decided that this form would be designed for the synthetic financing of the first privilege / second privilege in the middle of the street. Our intention is for this form to serve as a useful design resource, and we have added various design options as well as explanatory footnotes. The publication of this form represents an exciting new step for LSTA, as it is the first document offering for mid-market loans. OL lenders with redemption rights generally have an initial offer or a right of pre-emption to buy loans or bonds for sale by an FO lender to a third party. Some stores require that loans or bonds first be offered to other FO lenders before being offered to lenders. There may be a reciprocal right of first offer or a right of first refusal in favour of FO lenders. An ALA typically determines the lender`s necessary consents to change, modify, or waive the terms of the loan documents.
The provisions of the AAL apply in addition to the voting rights requirements in the credit agreement. They are designed to give FO and LO lenders a say in certain changes that run counter to their interests by granting collective voting rights. Voting rules and the level of protection afforded to lenders vary considerably from transaction to transaction and are often heavily negotiated. The tranches are prepared under the AAL by dividing the debt into FO debt and LO debt. FO debt typically includes all revolvers provided under the loan agreement and often includes a certain portion of the term loan drawn at closing, as well as any delayed drawdowns or additional loan obligation held by FO lenders. The LO debt is the debt provided for in the loan agreement, which is not an FO debt. REDACTED COPY «Agreement between Lenders» means the agreement between lenders with an even date, which is hereby signed by and between the guarantee agent and the lenders. In a remedy, FO lenders often have the initial right to exercise secured remedies against creditors, but required OL lenders may exercise secured remedies if the lenders do not exercise such remedies within a certain period of time.
Another common approach that generally leads to the same result in the real world is to allow either the required FO lenders or the required OL lenders to initiate the exercise of corrective measures after the expiration of a standstill period. OL lenders are generally subject to a standstill period, often between 60 and 90 days. FO lenders are often, but not always, subject to a standstill period; If this is the case, it is shorter than the closure of the LO lender. If OL lenders decide to take corrective action, FO lenders can take control of the remedies if they act before the expiry of the LO lender`s closure. Unitranche financing combines aspects of a traditional first- and second-lien structure into a single credit facility with a set of loan documents, a common lien, joint (or «mixed») interest payments, and a set of covenants. The unitranche structure allows lenders to adjust their inter-creditor rights based on the size of their respective first and last exit facilities and other factors specific to the transaction in an AAL. In a unitranche transaction, the loan agreement contains a single interest rate. Because the AAL spits out debt in pieces with different risk profiles, the AAL adjusts the return payable to FO and LO lenders through authoritarian provisions that redistribute interest payments and sometimes other amounts to be paid by the borrower from FO lenders to LO lenders. The adjusted effective interest rate for each tranche is the same as for a similar transaction of the type that the AAL wants to replicate, usually first or second lien financing. Key elements of the transaction include tranching, payment cascades, interest and expense recoveries, votes, redemptions, remedies, and standstill and disposition provisions. In the midst of a rapidly growing market, the LSTA has issued an AAL form for general use among Unitranche lenders. In an attempt to reflect the «market» of standard contractual terms, the LSTA form is a good starting point for drafting and negotiating an ALA.
In unit financing, lenders revise the terms of a single tranche of debt through an ancillary agreement called a lender-to-lender agreement or AAL. The underlying tranche can be almost any type of secured debt, including senior or subordinated lien loans or a revolver, or both. Under a LAA, OL lenders generally waive certain secured creditor rights in favour of FO lenders as long as certain conditions are met or protections are afforded to LO lenders. OL lenders rarely grant a blanket waiver of their secured creditor rights and almost never agree to waive their rights as unsecured creditors. Ms. Borders is a nationally recognized restructuring and finance lawyer. His practice focuses on the development, structuring, documentation and closing of financing transactions, representing borrowers and lenders in debt restructurings, reorganizations and forbearance agreements; and representation of debtors, lenders, buyers and unsecured creditors in chapter 11 reorganization cases. His practice spans a range of industries, including infrastructure, real estate, energy, healthcare, manufacturing, retail, catering, hospitality and transportation. Unless there is a cascading triggering event, FO and LO bonds are usually paid pari passu. If there is a cascading trigger event, all guarantee products and payments made by the borrower in accordance with the AAL payment cascade will be applied. During a cascading trigger event, FO bonds (which are often subject to a cap) are usually paid in full before the amounts are applied to OL bonds. Common triggers for the AAL cascade include an event of payment, bankruptcy or default of a financial clause, or a notice of recourse exercise by FO lenders.
M. Dutson is a financial restructuring partner in King & Spalding`s Atlanta office, with a focus on representing lenders and agents in large business turnarounds and restructurings. He has also represented debtors and other investors in various Chapter 11 bankruptcy and bankruptcy cases. Mr. Dutson often represents senior institutional secured lenders under syndicated credit facilities with particular experience in the foodservice, healthcare, energy, transportation, manufacturing and media sectors. Basically, an AAL divides a single tranche of debt into first-out («FO») and last-out («LO») tranches, often with the aim of replicating the economic and other conditions of first/second lien financing. Legal documentation typically consists of a single loan agreement, a single set of security documents, and an AAL. An AAL usually covers the following area. .