Incremental debt flexibility or accordion features
Produced in partnership with Osborne Clarke
Incremental debt flexibility or accordion features

The following Banking & Finance guidance note Produced in partnership with Osborne Clarke provides comprehensive and up to date legal information covering:

  • Incremental debt flexibility or accordion features
  • What are incremental facilities?
  • Typical deal structure—where/when are they used
  • Key features and points in documentation
  • Debt capacity
  • Yield caps
  • Termination date
  • No default
  • Related parties
  • Recent trends

What are incremental facilities?

An incremental facility is feature included in a credit agreement where, subject to meeting certain pre-agreed parameters, the borrower is afforded the flexibility to incur additional (or increases in) debt facility commitments. These will typically benefit from guarantees and security on the same basis as other existing facility commitments.

Incremental facilities are sometimes referred to as 'accordion' facilities as total commitments under the credit agreement will expand if incremental debt is incurred.

Typical deal structure—where/when are they used

Incremental debt flexibility is a common feature of large-cap sponsor transactions (especially the term loan B market). In addition, in a borrower-friendly market, it is not uncommon to see mid-cap borrowers requesting this flexibility, albeit subject to tighter constraints. Indeed, the Loan Market Association form of loan agreement for use in leveraged finance transactions (the LMA Credit Document) now incorporates optional drafting for such a feature.

Whereas in large-cap deal structures, junior debt and revolving facilities are frequently permitted to be incurred, in the mid-cap only pari-ranking senior term facilities are typically contemplated. An exception to this is where certain unitranche—super-senior mid-cap structures allow also for the incurrence of additional super-senior term debt.

Key features and points in documentation

The key feature of incremental debt is its simplicity. As there is no need to negotiate a