UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
• unitranche (term + delayed draw facility) by private credit lenders, with a super senior revolving facility from a bank; • Holdco facility by private credit lenders, with traditional syndicated structures at Opco level (eg, syndicated loans or high-yield bonds); • subordinated debt by private credit lenders alongside senior secured financing (syndi - cated loans or high-yield bonds); and • preferred equity. Revolving and Delayed Draw Facilities Private credit lenders often provide a delayed draw/acquisition-capex facility, a term loan avail - able post-closing (eg, three years) for bolt-on acquisitions. They don’t typically provide revolv - ing facilities (RCFs) or ancillary facilities. For tight acquisition timelines, private credit lenders may offer a hollow tranche revolving facility for a limited period (eg, 90 days), functioning like a term facility, expected to be replaced by an RCF. Unplaced commitments by the timeline’s end are cancelled or treated as term facility com - mitments. Many direct lenders collaborate with RCF providers to leverage intercreditor syner - gies for sponsors. 3.2 Key Documentation Typical documentation for private credit transac - tions includes: • a facilities agreement, which covers com - mercial terms, representations, undertakings, events of default, transfers, amendments and loan mechanics; • an intercreditor agreement, which governs rights between creditor classes. Unlike evergreen intercreditor agreements which are typical in syndicated markets, private credit intercreditor agreements are specific to debt classes and terms between unitranche and super senior RCF lenders. In Holdco facilities,
private credit lenders aren’t typically party to Opco-level intercreditor agreements but enter a subordination agreement for shareholder debt; and • a fee letter, which documents agreed fees and payment terms. First-Out-Last-Out (FOLO) Transactions The rise of collaborative structures like uni - tranche and super senior debt has reduced FOLO transactions. When used, FOLO transac - tions are documented under a single credit facil - ity, with a side agreement dividing the loan into first-out and last-out tranches. The higher-risk last-out tranche offers a higher margin, aligning with different lenders’ risk preferences. 3.3 Restrictions on Foreign Direct Lenders In England, foreign lenders don’t typically need authorisation to make loans unless engaging in “regulated activities” related to “specified investments” under the Financial Services and Markets Act 2000 (the “FSMA”). “Regulated activities” include accepting deposits, dealing in investments as principal or agent, arranging deals, managing and advising on investments and insurance contracts, requiring authorisation under Section 19 of the FSMA. There are also “change in control” requirements for investing in entities in “regulated activities”. Under Section 21 of the FSMA, only author - ised persons can communicate an invitation or inducement to engage in an “investment activ - ity” (a “financial promotion”) in the course of business. Unauthorised persons can communi - cate a “financial promotion” if approved by an authorised person. Corporate lending isn’t a regulated activity in the UK, unlike lending to individuals or certain part -
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