Prepayment Structures in Leveraged Finance: Balancing Borrower Flexibility With Lender Protections

Debt Retirement Provisions in Syndicated, Mezzanine and Second Lien Term Loans

A live 90-minute CLE webinar with interactive Q&A


Tuesday, February 27, 2018 (in 5 days)

1:00pm-2:30pm EST, 10:00am-11:30am PST

or call 1-800-926-7926

This CLE webinar will analyze the prepayment features of syndicated, mezzanine and second lien term loans. The panel will discuss provisions currently used in each type of loan to balance the borrower’s need for flexibility in future operations with the lender’s need for call protection and preserving the value of the credit.

Description

A borrower and its creditors have competing concerns with regard to retirement of leveraged debt. The interplay between these goals shapes the prepayment requirements and protections in financing agreements. Counsel should know what is “market” for these provisions and how to balance these concerns in drafting syndicated, second lien and mezzanine loan agreements.

The borrower wants to avoid forced prepayment triggers that restrict its ability to transact business. Its lender may want such triggers to prevent a borrower from taking actions that could affect the value of its assets or the borrower’s ability to repay the loan. The borrower would like to be able to prepay the loan at any time, while the lenders may desire call protection.

Term loans commonly require a percentage of “excess cash flow” to be applied to prepayment. This allows the lender to share in the cash flow generated by the business’ performance in a good year, as a hedge against performance in a bad year. A borrower has a substantial incentive to try to shape the excess cash flow formula in a way that minimizes the amount calculated.

Listen as our authoritative panel analyzes various prepayment provisions, including prepayment triggers and debt retirement mechanisms like cash flow sweeps in leveraged finance transactions. The panel will discuss the specific concerns of syndicated, mezzanine and second lien lenders as well as those of the borrower in each type of transaction.

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Outline

  1. Debt retirement provisions generally—concerns of borrower and lender(s)
  2. Prepayment triggers
  3. Excess cash flow provisions
  4. Voluntary prepayments
  5. Call protection and “soft call” provisions
  6. Comparison of syndicated, mezzanine and second lien prepayment structures

Benefits

The panel will review these and other key issues:

  • How do prepayment restrictions and triggers benefit lenders and how do they hamper a borrower’s business operations?
  • How might call protection provisions vary between syndicated, mezzanine and second lien loans?
  • What are some of the variations on the calculation of excess cash flow and when should it be applied to reduce the loan balance?

Faculty

Manzer, Alison
Alison R. Manzer

Partner
Cassels Brock & Blackwell

Ms. Manzer is a member of the Firm's Financial Services Group. Her practice encompasses a broad range of commercial...  |  Read More

Ryan, Tim
Timothy R. Ryan

Partner
Holland & Knight

Mr. Ryan is a highly experienced financial services attorney who has an extensive background in representing clients in...  |  Read More

Spiro, Vanessa
Vanessa G. Spiro

Partner
K&L Gates

Ms. Spiro is a member of the firm's banking & asset finance practice group. She has substantial experience in...  |  Read More

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