Q&As

What are unitranche facilities?

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Published on LexisPSL on 22/08/2014

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • What are unitranche facilities?
  • What is a unitranche facility?
  • What are the typical terms of a unitranche facility?
  • Who typically lends unitranche facilities?
  • What are the key advantages and disadvantages of a unitranche facility?
  • Advantages
  • Disadvantages
  • Are there likely to be any intercreditor issues?

What are unitranche facilities?

What is a unitranche facility?

Leveraged finance transactions are traditionally funded by a mixture of equity, senior debt, mezzanine debt and/or bonds. A unitranche facility is effectively a blend of the senior and mezzanine portion of the financing although it can sometimes covers part of the equity too. Therefore, instead of two facilities agreements, covenant packages, sets of security documents etc, only one is required. Unitranche facilities are more common on mid-market deals.

What are the typical terms of a unitranche facility?

Unitranche facilities differ from deal to deal but some typical features are:

  1. the facility will be in the form of a term loan; if a revolving credit facility (RCF) is also required it will normally be documented in the same agreement and share the same security package

  2. bullet repayment or possibly with a back ended amortisation schedule

  3. higher margin than senior debt but lower margin than mezzanine debt; margin may be a mixture of cash and PIK (ie capitalised interest)

  4. prepayment premium or other call protection; LIBOR floors are also common

  5. a bespoke covenant package that may comprise incurrence covenants, maintenance covenants or a mixture of the two; with no amortising tranche, a cash cover covenant may not be

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