USA – NEW YORK Trends and Developments Contributed by: Sheel Patel, Perry Hicks, Linda Boss, Jason Friedman and Ben Snyder, Mayer Brown LLP
the SPV Borrower. In some private credit trans - actions, assets that satisfy the eligibility criteria (sometimes referred to as the “buy box” criteria) will be automatically included in the Loan Assets of an SPV Borrower when acquired by the SPV Borrower. In other transactions, the Lender may retain some discretion to reject assets even if they satisfy the specified criteria. The require - ments that are included in the eligibility criteria will be specific to the private credit transaction. In some instances, such criteria are dictated by the exit strategy for the transaction, such as in a CLO warehouse. If the exit strategy is the issuance of a CLO, the requirements of the CLO market will dictate what assets can com - prise the Loan Assets and will be reflected in the buy-box criteria. In other transactions, there may be more flexibility, such as a private credit portfolio back leverage facility where the Loan Agreement is expected to mature over a speci - fied tenor without accessing an established exit market. In such a case, the eligibility criteria will be negotiated between the parties to fit the par - ticular need of the Non-Bank Lender and the tol - erance of the Lenders, and might be expected to include criteria such as (i) whether a loan is a senior loan, a second lien loan, unitranche loan, a recurring revenue loan, an ABL loan or other loan type, (ii) leverage levels of loans, (iii) the cur - rency of a loan, (iv) the tenor of the loan, and (v) whether the loan can be a participation interest, among other criteria. Reinvestment period/amortisation period Private credit portfolio back leverage facilities have varied tenors commonly ranging from three to five years, but regardless of the tenor, these facilities typically have two distinct peri - ods. During the initial period of the facility, the SPV Borrower will be permitted to draw down loans under the Loan Agreement generally for the purpose of acquiring additional assets from
the Non-Bank Lender through the loan sale or contribution agreement. This period is com - monly referred to as the “Reinvestment Period” and would be expected to align with the “invest- ment period” of the parent Non-Bank Lender. The Reinvestment Period under a Loan Agree - ment might run for several years. The second distinct period of these facilities is commonly called the “Amortisation Period” and (as the name suggests) during this period the facility will amortise. The amortisation schedule for any specific private credit transaction will be negoti - ated, but generally the cash sweep requirements increase over this period, potentially reaching a 100% capture of principal repayments from the Loan Assets not later than the last year of the Amortisation Period. Specialised accounts and prescribed waterfall Collections on the Loan Assets will be credited into blocked accounts and distributed pursuant to a specified priority of payments on a regular time frame (commonly, monthly or quarterly). Because the SPV Borrower is a limited-purpose entity without any practical operations, the col - lections of the Loan Assets can be aggregated in “collection” account for the relevant period and released in a waterfall on a regularly scheduled “payment date” . The number and purpose of accounts will be detailed in the Loan Agreement, but may often include specialised accounts for the purpose of holding (i) interest payments from the Loan Assets, (ii) principal payments from the Loan Assets, and (iii) reserve funds to cover calls or draws arising from the Loan Assets, among other special purpose accounts. On “payment date” , funds are aggregated from the applicable collection or payment account and distributed in accordance with a specified waterfall. While specifically negotiated, in a private credit port - folio back leverage facility, a common waterfall of payments might generally tranche payments
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