Structuring Incremental Loan Facilities: Key Terms for Lenders and Borrowers

Conditions Precedent, Incremental Capacity, Most Favored Nation Provisions, "Sidecar" Debt

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

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Conducted on Tuesday, September 25, 2018

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Course Materials

This CLE course will examine incremental loan facilities, including key loan terms such as incremental capacity, conditions precedent, most favored nation (MFN) provisions and incremental equivalent debt or “sidecar” agreements. The panel will look at issues from both lender and borrower perspectives.

Description

Incremental facilities allow borrowers to add new term loans or additional revolving commitments under an existing credit facility, usually subject to a hard dollar cap and/or leverage limits and other financial tests. Once the province of large cap deals, incremental loan facilities can be found in many middle market credit agreements.

Incremental facilities are advantageous for borrowers because they require only the consent of the lenders providing the additional commitments and require less documentation and fewer closing conditions. Existing lenders, however, may find themselves sharing collateral and payment priority with more aggressive (and less regulated) incremental lenders.

Lenders typically want a most favored nation (MFN) clause that provides existing lenders with interest rate protection. Borrowers will counter with short sunset provisions and other exceptions when lenders insist on an MFN clause. Incremental equivalent facilities may be incurred that allow the borrower to raise additional debt outside the credit agreement, often to fund acquisitions.

Listen as our authoritative panel of commercial finance practitioners discusses current market trends in the use of incremental loan facilities and key provisions of concern to the lender and the borrower.

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Outline

  1. Current trends in incremental loan facilities
  2. Conditions precedent, prepayment of existing debt, closing conditions
  3. Incremental capacity, financial covenants and other key terms of incremental loans
  4. Most favored nation, sunset provisions and other exclusions
  5. Limited conditionality transactions
  6. Terms applicable to incremental loan facilities
  7. Incremental equivlent or “Sidecar” debt

Benefits

Our panel will examine incremental loan facilities, and we will review these and other key issues:

  • Advantages and disadvantages for borrowers and lenders
  • Key loan terms such as incremental capacity, conditions precedent, MFN provisions, incremental equivalent debt or “sidecar” agreements, sunsets and other exclusions
  • Limited conditionality transactions
  • Trends in the use of incremental facilities—both in large and mid-cap loans
  • Perspectives from both lenders and borrowers, including typical provisions and agreements

Faculty

Nahr, J. Christian
J. Christian Nahr
Partner
Fried Frank Harris Shriver & Jacobson

Mr. Nahr represents investment banks, private equity sponsors, hedge funds and corporations in a broad array of complex...  |  Read More

Steinberg, Michael J.
Michael J. Steinberg
Partner
Shearman & Sterling

Mr. Steinberg practices structured finance, corporate and bank finance law. He represents financial institutions, major...  |  Read More

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