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LSTA MODEL CREDIT AGREEMENT FOR INVESTMENT GRADE REVOLVING CREDIT FINANCINGS – KEY PROVISIONS
INTERCREDITOR ARRANGEMENTS: LMA’S SUPER SENIOR / SENIOR INTERCREDITOR AGREEMENT
- Increasingly, European private debt funds have been lending directly to private equity sponsors and others borrowers
using a “unitranche” term loan that consolidates senior and mezzanine tranches into a single instrument with a blended margin. However, the European form of unitranche differs from the approach taken in the US, which documents the transaction with an AAL that the borrower does not sign.
- In Europe, intercreditor provisions are typically contained in a single intercreditor agreement that is signed by the
borrower and all lenders. The most common structure adopted in these deals is one where one of more funds participate in the term loan on a pari passu basis, and a bank provides “super senior” working capital facilities.
- On 17 May 2018, the LMA published the Intercreditor Agreement for Leveraged Acquisition Finance Transactions
(Super Senior / Senior) (the “Super Senior/Senior ICA”). The approach reflected in the LMA’s Super Senior / Senior ICA is that all of the debt ranks pari passu as to payments but, upon enforcement, the working capital liabilities are elevated to the top of the waterfall to a “super senior” position and, as such, are repaid from recoveries ahead of the term loan debt.
- Single Class of Creditors in EU Restructuring Context –– It is worth noting that where the American-style unitranche
structure is adopted in Europe (i.e., an AAL not signed by the borrower), there do exist some questions about
- enforceability. In particular, there are questions about whether the first out and last out creditors can form a single
class of creditors for the purposes of an English law scheme of arrangement under Part 26 of the Companies Act 2006,
- r if junior lenders can form a separate class to capitalize upon hold-out value. Recent case law has suggested that for
junior creditors to form a separate class in a restructuring, they must demonstrate that their distinct economic rights are also accompanied by separate legal rights enforceable against the borrower. Since borrowers do not typically sign AALs, it is unlikely that junior creditors would be able to form a separate class of creditors. Re Apcoa Parking Holdings GmbH & Ors [2014] EWHC 1867 (Ch.).
