1/25/2024 0 Comments Loan arranger defects![]() ![]() A clear disadvantage for borrowers is that the blended interest rate that applies to Unitranche loans is comparatively high, though still lower than the interest rate that applies to unsecured High Yield bonds (but similar to or higher than the interest rate that applies to senior secured High Yield bonds). ![]() ![]() Executing Unitranche deals is often more efficient and less costly than the execution of bank financing or TLB deals, due to the limited documentation required and the often small number of transaction participants. Similar to the TLB, the Unitranche product is therefore an attractive option to investors seeking to make acquisitions. ![]() Unitranche facilities feature minimal (if any) amortisation and more flexible terms than bank facilities, with most direct lending deals being "cov-loose" and providing the borrower with significant additional debt capacity. In such multi-lender cases, the lenders often take on different levels of risk (which is reflected in the pricing they receive) and set the arrangements between them in an agreement among lenders and not in a customary Intercreditor Agreement as seen in the bank financing, TLB or High Yield Bond context. Although Unitranche loans are often provided by a single lender on a bilateral basis, they can also be provided by a group of lenders or sold down by the original lender. Unitranche loans are usually documented in a single loan agreement and are provided by non-traditional lending entities (often debt funds). It has a single "blended" interest rate, which combines the separate rates of the senior and junior components of the loan. UnitrancheĪ Unitranche is a single tranche term loan that combines senior and junior debt into one facility. This flexibility can be an important draw for the TLB, but whether a cov-loose or cov-lite transaction is feasible depends on the circumstances of each case. Where a typical bank deal includes four financial covenants tests – a leverage ratio, interest cover ratio, debt service cover ratio, and capital expenditure limit – most TLB deals only include one or two financial covenants (cov-loose) or, sometimes, none at all (cov-lite). The increasing flexibility in TLB terms is especially visible in the financial covenant terms. Pivotal to this development is the growing role of institutional investors in the leveraged financing market, since they are typically more familiar with High Yield bond documentation than (LMA) bank documentation. Over the years, convergence has occurred between the terms of TLBs and High Yield bonds. In terms of pricing, TLBs are significantly more expensive than the Term Loan A, but cheaper than both the Unitranche and High Yield Bonds. As a result, it is a popular product with sponsor-backed companies and an attractive option for investors seeking longer-term financing. These features allow the TLB loan parties to focus on growth instead of on servicing debt payments. In addition, TLBs often allow borrowers to incur substantial additional debt, whether under the terms of the facilities agreement or as side-car debt. These features distinguish the TLB from the Term Loan A, which typically amortises in full over the life of the loan and is traditionally held by one or more banks. TLBs have a maturity of five to seven years and often have minimal amortisation (1% of principal per annum, if any) before a bullet repayment on maturity. As such, TLBs have certain capital market elements, often including substantial "flex rights". One or more banks normally act as Mandated Lead Arrangers and Bookrunners and agree on the terms before starting a broad syndication process. The Term Loan B (TLB) is a form of term loan financing typically provided by institutional investors (such as CLOs, debt funds, pension funds, and insurance companies) instead of by banks, and documented in the European market in an LMA-style facility agreement. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |