Private Credit – Amend and Extend – or More?

In the more challenging economic conditions facing the market, with new financings currently fewer and further between, borrowers are increasingly looking to amend and extend their existing financing arrangements. As consideration for extending the maturity date and, in some cases, providing additional debt, lenders may seek to negotiate amendments to the commercial terms to strengthen their position and preserve certain protections afforded to them in the existing financing.

Points lenders consider in this context include:

• Prepayment protection: resetting of non-call/prepayment periods from date of amendment for all Unitranche facilities or (if applicable) new Unitranche facility(ies) only.
• Margin/Margin ratchet: repricing of facilities, changes to leverage ratios in applicable Margin ratchet and resetting of any Margin ratchet 'holiday' from date of amendment for all facilities or (if applicable) new facility(ies) only.
• Incremental debt headroom: reducing vs resetting incremental debt capacity following provision of any incremental debt pursuant to amend and extend.
• Guarantee/Security refresh: requirements for additional or supplementary security to secure extended and/or increased/new facilities.
• Financial covenants: resetting of financial covenant levels following provision of further debt (if applicable).
• Fees: amendment/consent fee requirements.
• Maturity Date extension: in capital structures with competing or junior debt, potential requirement for 'springing' maturity concept to protect senior facilities from temporal subordination.

Borrowers may too though look to negotiate amendments to existing terms to make them more favourable than those agreed on the original deal with a range of market pushing concepts debated. Lenders should be wary of attempts in term sheets or amendment documentation to utilise the "snooze-lose" concept to either drag non-responsive lenders into an amendment or deem their non-responsiveness as acceptance of an amendment.