USA – NEW YORK Trends and Developments Contributed by: Sheel Patel, Perry Hicks, Linda Boss, Jason Friedman and Ben Snyder, Mayer Brown LLP
along the lines of the following (in the absence of defaults or cash sweep concepts and assuming we are in the Reinvestment Period): • first, to fees and expenses to third-party service providers (such as an account bank or non-lender collateral agent), subject to a cap; • second, to lenders to cover interest and fees; • third, to cover mandatory prepayments; • fourth, to a reserve account for purposes that may include funding revolving or delayed draw loans under the Loan Assets; • fifth, to cover remaining third-party expenses that were capped in the first step of the waterfall; • sixth, to cover other obligations under the Loan Agreement; and • seventh, to the SPV Borrower (or the Non- Bank Lender as its equityholder). Upon an event of default under the facility, the Lenders will have the right to accelerate the maturity date of the facility, demand the SPV Borrower repay the obligations under the Loan Agreement in full and, if necessary, foreclose on and sell all of the Loan Assets and all other assets of the SPV Borrower in order to satisfy the SPV Borrower’s obligations.
Dispersion of agent roles In private credit portfolio back leverage facilities, the roles of agents may be more dispersed. In a typical secured credit transaction, often the lead lender acts as administrative agent and collateral agent. In a structured finance transac - tion, agents may have more prescribed roles and the roles may be filled by third-party agents that have no “skin in the game” as a lender or in any other capacity. For example, a third party might be asked to act as “document custodian” or “verification agent” and have the role of provid - ing certain reports. A third-party account bank is often responsible for managing the disburse - ment of funds pursuant to the waterfall on each “payment date” . A separate third party might act in the capacity of custodian or collateral agent in order to perfect the Lenders’ security interest in the Loan Assets. In each case, these third-party agents would not typically act as Lenders in the facility. Conclusion Private credit portfolio back leverage facilities provide a source of financing to support the fast-growing private credit market. These trans - actions help private credit providers optimise their capital structure and support the contin - ued growth of private credit products. Securiti - sation techniques are central to these structures, and market participants will need to be familiar with those techniques and have a sense of the market to effectively negotiate and deploy these strategies.
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