UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
5.8 Priming Liens and/or Claims Methods to Structure Around Priming Liens Facilities agreements typically restrict incurring debt or granting guarantees/security that rank ahead of the lender’s debt, extending to incre - mental facility provisions, which only allow pari passu debt. Any amendments to these restric - tions in the facilities agreement or priority provi - sions in the intercreditor agreement will also be all-lender consent items. Junior creditors and super senior revolving lenders are usually stayed from enforcing remedies until senior creditors are repaid. Subordination Creditors of shareholder loans to the borrowing group are generally expected to become party to the intercreditor agreement as subordinated creditors. Group company creditors providing intercompany loans are also party to the inter - creditor agreement, subordinating their claims to senior creditors. Parties may negotiate minimum debt thresholds for these accessions. Anti-Layering Private credit lenders typically require an anti- layering provision to prevent additional debt layers that could subordinate existing creditors’ claims. These anti-layering provisions restrict borrowers from incurring new debt that ranks senior to existing obligations, maintaining the hierarchy of claims and protecting senior lend - ers’ interests. “No Short Circuit Clause” Private credit lenders typically require a “no short circuit clause” to prevent junior creditors from bypassing the priority structure to receive payments or enforce claims ahead of senior creditors. This ensures junior creditors cannot undermine the agreed payment order, such
as accessing collateral or receiving payments before senior creditors are fully satisfied. 5.9 Cash Pooling and Hedging/Cash Management Obligations Cash pooling and other transactions in the ordi - nary course of banking operations are not usu - ally restricted under the debt or security cov - enants in private credit transactions (similar to the treatment of these arrangements in broadly syndicated loans). Any permitted secured hedging (where such hedge counterparties have acceded to the inter - creditor agreement) will usually share the secu - rity and guarantee package. There may also be an agreed amount of hedging that will rank super senior. 5.10 Bank Licensing Corporate lending is usually unregulated in the UK (see 2.1 Licensing and Regulatory Approv- al ). In general, regulatory issues do not arise with the taking or holding of collateral in the UK. 6. Enforcement 6.1 Enforcement of Collateral by Non- Bank Secured Lenders In private credit transactions, a “single point of enforcement” is common, typically involving a share charge over the shares in a key hold - ing company. This allows the secured lender to appoint a fixed charge receiver (FCR) over the shares or an administrator over the parent company to dispose of the shares of the hold - ing company (and operating group subsidiaries). Enforcement of the share pledge takes control of the group away from the sponsor in order to deliver a going concern sale of the operating group.
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