Unitranche – The Rise and Rise

Course details

  • Date  12 September 2014
  • Time  09:00  -  13:00
  • Location  London
  • CPD Hours  4
  • Delegate Rate  £395 excl. VAT

  • Event type  Short Course

Course Overview:

Unitranche facilities migrated from the US market to Europe in 2008 in response to the funding gap which arose as European banks contracted their balance sheets.  Having achieved modest success in the early years it has experienced dramatic growth since 2011 driven by increasingly strong demand on both the buy and sell side and as borrowers have become more familiar with the product and it’s many advantages.

Initially the product was provided by a small group of alternative-debt style funds such as AXA (now Ardian), ICG, Ares and Babson. Some parties, notably GE Capital and Ares, created a joint venture to be able to offer a composite financing package and this trend has gather momentum with Barclays & Bluebay and others, following suit.  Supply has been boosted across the board as many existing providers have increased their commitment levels and been joined by raft of new entrants. Additionally, an increasing number of traditional bank lenders are being forced into providing unitranche as they have recognized the dangers this product poses to their existing leverage business across the credit spectrum in small, bilateral deals (e.g. Groupe Looping €30m), club deals (e.g. The Trainline) and even large syndicated deals (David Lloyds c. £500m). In the same vein, the larger unitranches provide stiff competition to the traditional high bond product.

The embryonic nature of the product, coupled with the rapid increase of both supply and demand has created a climate in which terms and conditions are extremely fluid.  The impact has meant that whilst unitranche was initially provided on a bilateral basis some deals have been clubbed (e.g. TheTrainline & Infopro digital) and more recently GE/Ares included a junior tranche. GE/Ares recently provided Parkdean with a junior unitranche to accompany the “standard” unitranche.

A further indication of its flexibility was the provision of a sharia compliant unitranche to Petainer Group. Competition on the supply side accompanied by a high levels of competition from loan and bond markets has mirrored the developments in loan and bond markets which have seen the acceptance of borrower friendly terms and the accompanying erosion of lender protection.

The private nature of the market and high levels of competition mean that unitranche operates in a private vacuum and information of deals and structures varies considerably. This programme is aimed at giving lenders, borrowers, lawyers, corporate financiers and others involved in providing, using or advising on unitranche a look under the bonnet and a toolkit to understand the key issues facing each of the main players.

Course Content

Background

  • Introduction & Background
  • Market overview
  • Typical providers – stand-alone, JVs (GE/Ares)
  • Providers approach to the unitranche
  • The basic structure of unitranche deals
  • Bifurcated unitranche
  • Three different variants of unitranche
  • Bilateral vs. Club deals
  • Pros & cons – why unitranche is proving so popular with lenders and borrowers

Key terms and conditions

  • Collateral & security – one agent or two
  • Differences between sponsored and corporate deals
  • Use and application
  • Facility size and application – how small or large can it go?
  • Leverage ratios – is there a typical range
  • Tenor and amortization
  • Covenants – a more eclectic approach? 

Margins & Call protection

  • How unitranche providers approach the credit
      - Approach of debt funds vs. traditional banks
  • Hard vs. soft call-protection – typical terms
  • Margins
      - Current and past trends
      - Different margins for different structures
  • Margins current trends for the variants of unitranche
  • Structuring the coupon – cash, PIK, warrants

Use by corporates (as opposed to sponsored deals)

  • Review of the US market trends and use by corporate borrowers
  • A look at Europe – why & how unitranche can work for corporate lenders
      - Corporate examples in practice (Claranet)
  • Not all debt funds are vultures
  • Tailoring unitranche to corporates’ demands
  • Potential use and application – M&A, growth/capex, Equity release

Documentation & Inter-creditor issues

  • The basic structure of the Loan – is nothing standard?
  • Documenting bifurcated unitranche – 3 approaches
  • Inter-creditor arrangements vs. Agreement Amongst Lenders
  • Key issues for providers of “banking facilities” (e.g. RCF, Capex)
  • Key issues for providers of “Senior” unitranche
  • Hedging facilities
      - Who provides this
      - Ranking (always first?)
      - Handling large RCFs
  • Voting issues & thresholds
      - When and where they matter
      - Any differences to traditional LMA approach
  • Enforcement issues – reconciling the unitranche and the RCF tensions
  • The concept and application of “Material Events of Defaults
      - Why do we need it
      - What does it cover
      - When does it matter
  • Key issues for borrowers
  • Portability – when it matters – key issues & key problems

Junior Unitranche (Parkdean)

  • Rationale
  • Terms and conditions (note these will be highly tailored and deal-specific)
  • Impact on the deal
  • Documentation & Inter-creditor issues

Cases: the programme will include a case study on structuring unitranche and a discussion of the key issues from the various players perspectives