Recurring Revenue Financing: Structuring, Documentation, and Financial Covenants

Alternative Financing for Early Stage Growth Companies

Recording of a 90-minute premium CLE video webinar with Q&A

Conducted on Thursday, February 18, 2021

Recorded event now available

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Course Materials

This CLE course will examine the unique characteristics of recurring revenue financing (RRF), and the issues lenders and borrowers should consider in structuring recurring revenue transactions. The panel will also discuss how the conversion of such transactions to more conventional earnings-based financing should be addressed in the financing documents.


Emerging companies with positive revenue growth but high growth expenses, such as development costs, are often unable to achieve positive EBITDA and cannot obtain debt financing based on traditional working capital borrowing base or cash flow underwriting. For those companies and their prospective lenders, RRF is a possible solution. Private equity sponsors may also be able to utilize recurring revenue of target companies to finance acquisitions. Finance counsel should have a thorough understanding of the structure, risks, and nuances associated with RRF.

The essence of RRF is that borrowing base criteria can be based on recurring revenue that meets tailored eligibility criteria. Typical financial covenants are based on maintaining certain levels of recurring revenue growth and liquidity, rather than EBITDA-based ratios. Financial covenants may also convert after a period of time to more customary financial covenants in the form of EBITDA-based ratios (e.g, leverage ratio or fixed charge coverage ratio), along with the possibility for a reduction in the interest rate. Although RRF facilities may be used to finance acquisitions, they are not often highly leveraged, so significantly higher equity contributions may be required from a private equity sponsor seeking RRF than with traditional leveraged financing in the acquisition context.

Equity cure rights may be available, with proceeds generally applied to pay down existing loans to achieve required financial covenants outlined in the documents. Incremental facilities may also be included.

Listen as our authoritative panel discusses the key deal points and structuring nuances of RRF.



  1. Recurring revenue financing as an alternative to traditional ABL borrowing base revolver for growth companies and PE funds seeking working capital or to acquire growth companies
  2. Borrowing base formulas: eligibility criteria and churn
  3. Payment features: interest, amortization
  4. Recurring revenue and liquidity covenants
  5. Conversion to EBITDA-based financial covenants
  6. Other structural features


The panel will review these and other important issues:

  • What debt financing options are available to companies that do not have earnings?
  • How can recurring revenue be used as a basis for pre-EBITDA debt financing?
  • How has RRF been used in connection with acquisitions? What percent of the capital stack does it represent?
  • What are the typical parameters for allowing the loan to convert to a more conventional EBITDA-based financing?


Jha, Sonakshi
Sonakshi Jha

Troutman Pepper

Ms. Jha’s practice focuses on representing both financial institutions and borrowers in leveraged finance...  |  Read More

Tendler, Philip
Philip J. Tendler

Pillsbury Winthrop Shaw Pittman

Mr. Tendler is the co-leader of the firm’s Bank and Leveraged Finance Team and offers clients the benefit of his...  |  Read More

Wood, Justin
Justin A. Wood

Troutman Pepper

Mr. Wood represents lenders and borrowers in all aspects of financing transactions, including structuring, documenting,...  |  Read More

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