USA Law and Practice Contributed by: Michael Chernick, Sara Coelho, John Chua and Josh Tryon, A&O Shearman
its most recent financing (with “market flex” rights in syndicated financings to remove the most aggressive terms if necessary to achieve a successful syndication of the loan). To remain competitive, lenders have had to be increasingly selective about the terms they resist in negotiations, even regarding flex terms. There has also been an increased focus from lenders on provisions aiming to protect lenders against liabil- ity management transactions (as further explained below). Another recent US market trend is the growth of debt financings at the holdco level. Private equity sponsors’ desire to be more competitive in auction processes, and non-bank lenders (and in recent years, bank lend- ers) that are seeking to deploy additional capital at attractive returns, have contributed to such growth. Holdco financings often include a payment-in-kind interest construct which enables the opco structure to keep operating without the need to service addi- tional cash interest and amortisation payments. The holdco loans or notes are structurally subordinated to any debt at the opco level and typically do not have recourse to the assets at the opco level. Therefore, the holdco lenders are typically not party to any intercredi- tor agreement with the opco lenders. Financing with similar features can be achieved through the issuance of preferred equity at the holdco level. 1.6 ESG/Sustainability-Linked Lending There is a growing trend in the US loan market to teth- er loan pricing to a borrower’s ability to achieve pre- determined ESG or sustainability-linked objectives. Some borrowers perceive this tool as a way to both (i) enhance their sustainability profiles by integrating ESG-oriented goals that will appeal to investors and the public, and (ii) secure lowered interest rates and fees on their loans. Borrowers, under pressure to prove their sustainabil- ity and ESG credentials, will often collaborate with a third-party sustainability structuring agent to devel- op precise ESG benchmarks that will be monitored throughout the loan. Interest rate margins and fees will ratchet up or down depending on performance against pre-set targets. Over time, these benchmarks frequently evolve to become more rigorous. Increas-
ingly, materiality of the margin ratchets has been criticised by participants who question whether it is enough to motivate change. 2. Authorisation 2.1 Providing Financing to a Company In the USA, banks have the option of being chartered by a state government or the federal government under a so-called dual chartering system. Banks, which are chartered by state banking authorities, are primarily subject to the regulations of the relevant state authority and may also be regulated or super- vised by the Federal Reserve and/or Federal Deposit Insurance Corporation (FDIC). Banks chartered by the federal government on the other hand are subject to regulation by the Officer of the Comptroller of the Cur- rency (OCC) and are required to become members of the “Federal Reserve System”. Under federal law, federal and state banks are also required to obtain insurance from the FDIC protecting depositors. Although alternative credit providers, direct lenders and other non-bank lenders are primarily subject to Securities and Exchange Commission (SEC) rules and regulations, they may also be subject to regula- tion under the Investment Company Act (ICA) as an “investment company”. However, such lenders are often exempt from many of the ICA’s requirements and regulations. In 2025, regulatory scrutiny of private credit is inten- sifying, with policymakers considering new disclosure and transparency requirements for private funds, especially as these lenders take on a larger share of lending traditionally dominated by banks. 3. Structuring and Documentation 3.1 Restrictions on Foreign Lenders Providing Loans Foreign lenders are subject to the (i) International Banking Act and (ii) the Foreign Bank Supervision Enhancement Act as well as regulated by the Federal Reserve, whose approval is necessary to establish foreign banking institutions in the US.
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