Super Senior/Senior ICA
Earlier this year we wrote about how the LMA had updated its suite of super senior loan and intercreditor documentation. The LMA has now gone one step further and recently pushed a new recommended form of intercreditor agreement for use in leveraged acquisition finance transactions, where the financing comprises a super senior revolving facility and a senior term facility, under one agreement (the “Super Senior/Senior ICA”).
The Super Senior/Senior ICA is based upon the LMA forms of intercreditor agreement for leveraged acquisition finance transactions for:
(i) senior/mezzanine structures; and
(ii) super senior revolving facility and senior secured note structures.
The Super Senior/Senior ICA is intended to be used alongside the LMA’s recommended form of facility agreement for leveraged acquisition finance transactions. A user guide in respect of the new intercreditor was also published and should be read in conjunction with the ICA. Both documents are available on the LMA website to LMA users.
The recommended form has been drafted on the assumption that the facility will not be subject to an underlying agreement among lenders (as may be the case in non-European countries) and that the lenders under the term facility will rank pari passu between themselves regarding right of payment but the revolving facility will rank ahead of the term facility in terms of all recoveries of enforcement by elevating the working capital liabilities to the top of the post-enforcement waterfall.
Previously, the market has generally used the framework of the senior/mezzanine LMA ICA for leveraged finance transaction and therefore the new Super Senior/Senior ICA is a welcome addition to the LMA precedent document suite. It is hoped that the document will ensure consistency in the market although it is noted that the drafting contains a significant amount of optionality (meaning that there is no one particular approach to the key negotiated points in respect of any deal).
The Super Senior/Senior ICA will likely become the starting point for first in/last out deals (i.e. where it is agreed in the ICA that a portion of the term loan ranks “super senior” alongside the working capital facility). Of course, the necessary amendments to the drafting will need to be made by the law firms acting in respect of those deals.
Replacement of screen rate
As previously reported in our Autumn newsletter last year, all good things must come to an end sometime and so the same would appear to be true for LIBOR.
The United Kingdom Financial Conduct Authority had announced it will phase out the London Interbank Offered Rate (LIBOR) by 2021 and this remains true. What also remains true is the question of what happens when LIBOR is no longer available? Although there is no immediate answer to this question the LMA has recently published a revised Replacement of Screen Rate clause in an attempt to provide further flexibility in light of the uncertainty over the future of LIBOR and other benchmark rates.
At this time, the revised Replacement of Screen Rate Clause has been produced as a standalone rider in a “slot-in” format. A user guide has also been published which should be read in conjunction with the Clause. Both documents are available on the LMA website to LMA users and the LMA have confirmed that the amendments will be incorporated into facility agreement precedents in due course.
It’s worth noting too that the revised Replacement of Screen Rate Clause provides that if a Screen Rate becomes unavailable, any amendment replacing that Screen Rate may be made with Majority Lender and Obligor consent (effectively a lower consent threshold than was required under an earlier version of the clause).