Accordion Accession Agreement
In borrower-friendly markets, which have prevailed since about 2014, it is not uncommon for short-term borrowers to benefit from this flexibility, but with stricter restrictions in small and medium-sized enterprises and for unsusored speculative loans. The Loan Market Association`s credit agreement form for the use of leveraged financing transactions (the LMA credit document) now contains an option for such a function. Second, they will want to have the right to participate (either as a right to the first offer or as a right to the last vision) in any proposed increase in obligations. An accordion is an opportunity to increase credit exposure rather than buying on the secondary market (in cases where the debt is liquid). In addition, the effects that dilution would have on voting agreements in the context of financial documents will be avoided. This last point is particularly important when it comes to illiquid loans (e.g. B many debt fund operations), where the exclusive ability to control implementation in a downward scenario is of the utmost importance. Lower or unsusered credits often have no accordion device. However, we see a lot of merit for all parties to integrate at least the establishment mechanism from the outset, but with the lender`s discretion under key conditions that can, if necessary, be relaxed by a simplified approval mechanism.
The advantage of this approach is that it avoids changes and (perhaps) a flexible guarantee, as well as the necessary business authorizations and legal advice if such a facility or an increase in liabilities was desirable in the future, for example to support an acquisition or liquidity event. A borrower may also be able to secure more favorable terms, while having greater leverage at the beginning of a transaction. The initial rationale for yield caps is that they support primary syndication of initial maturity debt, as they reduce the likelihood that potential lenders will choose not to participate in primary syndication, in the hope of obtaining more advantageous prices in a future accordion facility. For non-unionized transactions, the yield cap is a cruder method to improve the performance of initial debt securities. It will be necessary that the date of termination of the accordion debt is not earlier than the date of termination applicable to the original debt in question. An additional buffer (for example.B. three or six months) is sometimes included to provide original lenders with additional comfort to be repaid to accordion debtors. It is a question of negotiation. Existing lenders who agree to allow accordion capacity have two motivations: first, they will want (as usual) to ensure that existing lenders will not have to participate in accordion debts; The unrelated nature of the facility is clearly important from the point of view of credit and regulatory capital. A borrower must have sufficient debt capacity – and this level of debt capacity must be acceptable to lenders (with due regard to all leverage narratives).
The LMA credit document allows users to insert their own hard numerical limit. However, in credit agreements for stronger sponsors, we generally do not see a severe cap on accordion debts and the appearance of unlimited accordion debts, allowed subject to compliance with a pro forma leverage test. This is usually only a priority if the debt that can be contracted is only a priority or a priority and comprehensive, even if a resentful debt is taken into account. . . .