April 18, 2019 - All you need to know about the LSTA’s new form of Agreement Among Lenders was presented in the LSTA’s webcast, “The New LSTA Form of Agreement Among Lenders Unveiled”. The webcast, presented by the LSTA’s external counsel on this project, Geoffrey Peck, Min Heo, and Todd Goren of Morrison & Foerster, explained the genesis of the form, its intended use and outlined the key operative provisions in the agreement. Click here for the slides and replay.
In a unitranche financing, different tranches of debt are combined into a single tranche of debt that is extended to the borrower under one credit agreement. The borrower pays one blended interest rate to the lenders, and the lenders agree to create first out and last out tranches in a separate Agreement Among Lenders (AAL). Unitranche financings are certainly a creature of the middle market, but has been seen in increasingly larger deal sizes. In 2018, LPC tracked $27 billion in unitranche facilities– a 13% increase YoY – and 58% of those deals were sized over $100 million compared to only 48% in 2017. Both the prevalence and size are on the rise.
The LSTA’ form AAL is intended for a synthetic first lien/second lien unitranche financing with two classes of lenders – the first out lenders (FOL) and the last out lenders (LOL). It is important to note the intended use because unitranche financings come in many different flavors, different ranges of complexity and different allocations of risk. Therefore, the LSTA’s form will hopefully serve as a helpful drafting resource for a balanced, middle of the road transaction but it offers different drafting options along with explanatory footnotes to address some of the more negotiated points. The webcast highlighted these points and detailed the key operative provisions: exercise of remedies (Section 2), voting (Section 4), bankruptcy provisions (Section 3), waterfall triggering events and the payment waterfall itself (Sections 5-9), and buyout rights (Section 10). The LSTA recommends the webcast as a go to resource for market participants looking to familiarize themselves with the form.
Publication of this form represents an exciting new step for the LSTA in that it is the first document offering intended for middle market lending. The LSTA will continue to look for opportunities to develop market standards and forms for this important space.