LMA launches new Super Senior High Yield Facility and Intercreditor Documentation12 November 2014
The LMA is pleased to announce the launch of a new recommended form of Super Senior Multicurrency Revolving Facility Agreement and associated Intercreditor Agreement for use in those transactions which assume a super senior revolving facility, senior secured note and high yield note structure (the "Super Senior HY Documents").
The Super Senior HY Documents follow the successful launch of the super senior documents, launched in November 2013, which assume a super senior revolving facility and senior secured note structure. This project was started in response to demand from members active in the leveraged finance market who were increasingly seeing finance provided to corporates via a combination of loans and high yield bonds. Whilst it was recognised that the nature of these transactions and the various stakeholders involved in the process would make it difficult to produce "one size fits all" documents, members felt that the basic formulation of a standard form template would be a step forward in achieving greater efficiencies and standardisation across the market, by providing a common framework and language for those involved in these transactions. The LMA believes that this will enable market participants to concentrate on the key commercial drivers and structural nuances which form the basis of their transactions.
The Super Senior HY Documents, which use the same basic structure and "boilerplate" as the LMA Recommended Forms of Primary Documents for the leveraged finance market, were put together and agreed by an experienced working party, consisting of representatives from banks (including in-house lawyers), major City law firms and AFME, and were based on their first-hand experiences of undertaking such transactions.
Commenting on the documents, Clare Dawson, Chief Executive of the LMA, said:
"The new documents have come about as a result of increased activity in the high yield leveraged finance market and represent a welcome addition to our existing suite of documentation intended for use in leveraged finance transactions. They evidence the LMA's ongoing commitment to fostering liquidity in the syndicated loan market, by ensuring that its documents meet member demand by being reflective of the transactions taking place in the market."
Further information is provided below:
- What benefits will the Super Senior HY Documents bring to the market?
The Super Senior HY Documents will bring numerous benefits to the market. Firstly, increased efficiency resulting from the standardisation of boilerplate terms and provision of a common and recognisable legal framework, with the ultimate aim of improving liquidity in the market. A lack of standardisation can lead to increased negotiation and time taken for transactions to complete, particularly where there are different types of stakeholders, such as lenders and bondholders. It can also mean that a market is less attractive to new investors.
Secondly, the LMA reviews its documents on a regular basis, thus ensuring that they reflect current market practice, accommodate the regulatory and legal framework and continue to meet the needs of participants in the market.
Finally, following with the launch of the Super Senior HY Documents, the LMA will hold a series of training events and seminars for members.
- What type of transaction is this applicable to?
The document is designed for use in leveraged acquisition finance transactions involving a super senior revolving facility, senior secured notes and high yield notes.
The document assumes a typical super senior revolving facility, senior secured note and high yield note structure, whereby a parent company establishes the borrower, to which finance is made available for the acquisition of a target company. The assumption is also made that equity investment is by way of (a) ordinary shares and (b) institutional loan notes or preference shares into the parent company. Security is to be granted in favour of a common trustee for both the lenders, the senior secured noteholders and the high yield noteholders, but with certain security being granted in favour of the lenders and senior secured noteholders only, with the order of priority and other trustee provisions set out in the separate intercreditor agreement.
Within this remit however, various optional provisions have been included in square brackets in order that a "menu of clauses" is available to the draftsman should those clauses be required. This is not to say that the document will not need to be adapted – depending on the structure and the commercial terms, it will need to be tailored to each individual transaction. This is in keeping with other LMA documents, which are intended to provide a sensible starting point and do not attempt to deal with the potential complexities of every possible type of transaction.
- Why do you expect the new document to be adopted by market participants?
LMA documentation is widely recognised within the corporate loan markets as a good basis for negotiation, and the LMA's documentation for use in leveraged finance transactions is already widely established. It is therefore anticipated that the LMA's approach to appropriate standardisation for those structures which envisage the provision of finance via both loans and bonds will be as attractive as it has been in the traditional leveraged loan market.
It should be highlighted that prior to starting the project, the LMA did considerable market sounding of LMA members who are actively engaged in the leveraged finance market, both in a loan and bond context. Accordingly, the Super Senior Documents were put together and agreed by an experienced working party, consisting of representatives from banks (including in-house lawyers), major City law firms and AFME. This process should mean that the document is widely acceptable as a starting point within these institutions.