Unitranche meaning

Borrowers can choose from a broad range of debt and capital structuring routes. Traditionally, senior debt (typically provided by banks) sat at the top, then mezzanine finance, followed by junior debt, each ranking ahead of unsecured creditors and shareholders/equity holders. After the 2007/8 credit crunch, businesses increasingly tapped capital markets and non-bank sources (eg private credit) to widen their funding, adding further layers of indebtedness. This Practice Note offers a straightforward overview of the different tiers of debt and security a restructuring lawyer may encounter. It outlines the financing layers and the forms of security commonly seen in practice by a restructuring lawyer. It also sketches how those tiers now sit together in practice. Capital structures and interplay between creditors Typically, external borrowings sit at the operating company (Opco) level. The Opcos own the core business assets (eg premises, key manufacturing equipment and valuable intellectual property), produce most of the profits, and lenders seek security over those assets. In some arrangements, high-value items such as intellectual property or...

In most leveraged buy-outs, funding combines equity and debt. Deployment of proceeds varies by deal, but finance is typically directed to: buying the target business—usually by making a direct payment to the seller meeting transaction costs and expenses, including advisers’ fees, and refinancing outstanding debt A transaction may instead aim to refinance existing liabilities or return capital to the sponsor without a full exit—known as a ‘leveraged recapitalisation’—rather than acquire a target (see Practice Note: What is acquisition finance?). This Practice Note considers: how investors inject equity into the group and the forms that equity may take the range of debt options, including senior facilities, mezzanine facilities, second lien facilities, PIK or payment in kind facilities, unitranche facilities, senior secured notes and subordinated notes, and the factors that influence the choice of funding structure For an introductory overview, see Practice Note: Introductory guide to acquisition finance. For a glossary of key terms and...

What are incremental facilities? An incremental facility is a provision in a credit agreement that, once certain pre-agreed conditions are met, gives a borrower the latitude to take on further, or enlarged, debt commitments. Those additional commitments will usually and ordinarily enjoy guarantees and security on the same footing as the existing facilities. Such arrangements are commonly nicknamed “accordion” facilities because the overall commitments under the credit agreement expand when incremental debt is raised. Typical deal structure—where/when are they used Flexibility for incremental debt is a familiar element of sponsor-backed transactions in both the large-cap and mid-cap space. The Loan Market Association’s leveraged finance form of loan agreement (the LMA Credit Document) now provides optional drafting to include this feature within the form. In mid-cap deals, the expectation is generally confined to pari passu ranking senior term incremental facilities, which also sit alongside the incumbent senior term lines. An exception is seen in certain unitranche super-senior mid-cap structures, which also permit additional super-senior term debt. In large-cap...