September 13, 2019

Hotly Negotiated Terms in Credit Facilities: Who Agreed to That?

As lenders continue to face fierce competition to deploy capital, an increasing number of topics are being hotly negotiated in proposal letters, commitment letters and credit documents.   In this credit environment, certain Borrowers are empowered to make more aggressive requests for what many may argue are well-established “market” provisions, while also requesting additional creative requests that debt providers may have never seen before.  For example, time periods for providing notice of certain events, cure periods, reinvestment periods, post-closing delivery time periods (and what items are permitted to be delivered post-closing) and realization of synergy benefits for purposes of EBITDA add-backs are continually being requested to be lengthened and stretched.  EBITDA add-backs requested are pages long with the Lender relying on a general cap to add-backs to provide some comfort.  Lenders are also facing resistance to obtaining security for foreign collateral, even in light of the change in tax laws, and with respect to any perfection steps that require additional time or expense on the part of the Borrower (for example, complying with federal assignment of claims or providing applicable documentation in connection with lending on in-transit inventory).  Borrowers are also requesting additional flexibility with respect to making restricted payments and/or permitted investments to grow and expand their business through permitted acquisitions and joint ventures and other opportunities.  Lender are tasked at providing that flexibility while also protecting the value of their collateral and the rating of the underlying credit structure.  In addition to requesting additional flexibility on the actions the Borrower is permitted and/or prohibited from taking, Borrowers are also making more aggressive demands with respect to having control over the Lender’s ability to assign the loans and voting rights among the Lenders.  There are various formulations with respect to consent rights granted to the Borrowers and when and which entities may never take a portion of the loan by assignment. 

This program is going to discuss how some of what appeared to be settled issues are moving to favor the Borrowers and how Lenders are (or are not) comfortable with making those accommodations and evaluating some of the reasons for, and risks related to, some of the newer requests that the panelists have come across.

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