Finance Insights
Analysis and practical guides on finance.
39 articles, checklists, and guides on finance law, written by the attorneys at MC Law. Every piece is general information, not legal advice—for a specific matter, contact the firm.
Unitranche Toolkit: AAL Provisions, Waterfall Mechanics, and Voting Constructs
This toolkit supplies the operative provisions of an agreement among lenders in drafting-ready form, each annotated with the failure it prevents. It opens with a lender term sheet to be agreed before the credit agreement is final, then provides skim and payment application mechanics, a trigger event definition with the drafting traps identified, and a full waterfall. It supplies a voting construct with a controlling party, a standstill, and a sacred rights schedule; a buyout option with the four provisions that make it operative; and turnover and bankruptcy provisions layered so that the reliable remedy does not depend on the least reliable clause. Transfer and joinder mechanics, an agent joinder, a buyout exercise notice, and a definitional reconciliation table complete the set.
Unitranche Facilities and Agreements Among Lenders: One Loan, Two Tranches, and a Private Waterfall
A unitranche facility looks to the borrower like one loan at one rate, and is in fact two or more tranches with different economics divided by a contract the borrower usually never sees. This article explains what the agreement among lenders actually does: how the interest skim converts a blended rate into first-out and last-out returns, how the payment waterfall changes on default, who controls enforcement, and how the buyout option lets the last-out lender take the position out. It addresses the question that has troubled the structure since its invention—whether the agreement binds in a bankruptcy case where the borrower is not a party—and what documentation practice has developed in response. It closes with what a borrower should care about in a document it does not sign, and how unitranche compares to a conventional first lien and second lien structure.
Unitranche and AAL Review Checklist
A unitranche is two or three documents that must agree with each other, and the defects that matter are consistency defects that surface only in a workout. This checklist reviews the whole structure. It covers the tranche and skim allocation including the items routinely omitted, the trigger event and waterfall drafting, the voting construct with sacred rights, and the buyout option with the four provisions that make it operative. Later sections cover the turnover and bankruptcy provisions that carry the enforceability risk, the transfer and joinder mechanics, the agent's position, and the super-senior revolver intercreditor. It closes with a definitional reconciliation table to run across every document before signing, and an administration checklist for the life of the facility.
Receivables Finance Toolkit: Borrowing Base Certificates, Factoring Agreements, and Control Documents
This toolkit provides the operative documents of an asset-based or receivables facility in drafting-ready form, annotated with the provision each one turns on. It includes a borrowing base certificate, a full set of eligibility definitions with the borrower-side negotiating points marked, and a reserve provision with the four protections worth insisting on. It supplies the third-party documents that drive every closing timetable—a control agreement request, a landlord waiver, and a bailee letter—with guidance on moving each. For receivables purchase structures it provides true sale provisions, a notification letter, and validity guaranty language. An intercreditor access rights clause and a borrowing base procedure memorandum for the borrower's finance team complete the set.
Liability Management Transactions: Drop-Downs, Uptiers, Exchange Offers, and the Covenants That Allow Them
Liability management is the practice of using the flexibility in existing debt documents to raise new money, move collateral, or reduce debt outside a bankruptcy court, and it has become the defining feature of distressed credit. This article explains the three principal structures—drop-downs, uptiers, and exchange offers—and the covenant mechanics that make each possible. It works through the sacred rights that majority lenders cannot amend, the difference between bond indentures and credit agreements in this respect, and the litigation that has followed each generation of transaction. It then turns to the defensive side: the cooperation agreements lenders now sign, the covenant provisions that close the openings, and what a lender should actually check before buying. Worked examples follow a drop-down and an uptier through the documents that permitted them.
Liability Management Transaction Checklist
Liability management transactions are executed and attacked on the same document, and both sides work through the same provisions in opposite directions. This checklist provides that work as a sequence. It opens with the covenant map and the capacity computation that decide whether a structure survives, then covers the diligence, opinions, and board record a company needs, the assembly of a participating group, and the execution and perfection steps that are most often botched. The defensive half covers early-warning signals, organizing to a blocking position, cooperation agreement terms, the trading and information constraints that follow, and the claim-building sequence. It closes with a lender's underwriting review and the covenant tightening worth demanding in any settlement.
Executing or Resisting a Liability Management Transaction: A Practical Guide
Liability management transactions are executed and resisted on the same document, and both sides do the same work in opposite directions. This guide sets out that work. For the company it covers the capacity computation that determines whether a structure survives, the diligence and opinions that make it defensible, the assembly of a participating group, and the execution sequence. For lenders it covers the early-warning signals, how to organize before a proposal arrives, what a cooperation agreement should contain, the trading and information problems that follow, and how to build a claim. It closes with the negotiation that resolves most of these situations and the terms worth fighting for.
Documenting a Unitranche Facility and an AAL: A Practical Guide
A unitranche is two documents that must agree with each other, and most of the defects in the structure come from their failing to. This guide runs the documentation process: sequencing the credit agreement and the agreement among lenders so they are drafted together, allocating the tranches and the skim, drafting the trigger event and the waterfall, and building the voting construct with sacred rights and a standstill. It covers the buyout option in detail, the turnover and bankruptcy provisions that carry the enforceability risk, and the agent's joinder that lets payments be applied directly. It closes with the definitional reconciliation that should be the last step before signing, and with the ongoing administration and amendment process.
Distressed Debt Toolkit: Exchange Offer Documents, Consent Solicitations, and Covenant Analyses
This toolkit supplies the working documents of a liability management transaction from both sides, annotated with what each provision does and how it fails. It provides a covenant analysis template and a capacity computation schedule, a designation certificate, and exit consent and supplemental indenture language for an exchange offer. On the defensive side it provides a cooperation agreement, a notification letter that stops a transaction before it starts, and an excluded lender demand letter that frames the capacity challenge. It closes with the protective drafting that closes each opening—sacred rights additions, a defined open market purchase, IP transfer blockers, and anti-double-dip language—and a settlement term sheet.
Closing an Asset-Based Facility or Factoring Line: A Practical Guide
Closing an asset-based facility is a collateral diligence exercise wrapped around a credit agreement, and the collateral work drives the timetable. This guide runs the process from term sheet through first funding, beginning with the availability model that should precede any signature because the gap between the commitment and actual availability is routinely thirty percent. It covers the field examination and appraisal that set the numbers, the eligibility and reserve negotiation where the real money is, and the perfection steps that must be complete before funding. Separate sections address the third-party documents that take longer than anything else, the intercreditor access rights that determine whether inventory can actually be realized, and the factoring alternative with its true sale structuring. It closes with the first ninety days of administration, where facilities most often go wrong and where the lender forms a durable view of whether the borrower's reporting can be trusted.
Asset-Based Lending Diligence Checklist
Asset-based facilities close on collateral diligence, and the items that delay a closing are almost always third-party documents nobody sent early enough. This checklist runs the whole process. It opens with the availability model that should precede any term sheet, then covers collateral diligence on customers, contracts, inventory, locations, and liens, the field examination and appraisal, and the eligibility and reserve negotiation where availability is actually determined. Later sections cover perfection by collateral type, the third-party documents and how to move them, the intercreditor terms that matter, factoring and true sale structuring, and the post-closing administration that determines how the lender treats the borrower for the life of the facility.
Asset-Based Lending and Receivables Finance: Borrowing Bases, Factoring, and Control of Collateral
Asset-based lending prices a company's assets rather than its cash flow, which makes it available to borrowers no cash flow lender will touch and makes its documentation entirely different. This article explains the borrowing base—the eligibility criteria, advance rates, and reserves that decide how much a borrower can actually draw—and the monitoring apparatus of field examinations, appraisals, and reporting that supports it. It then turns to receivables finance, where the central question is whether a transaction is a sale or a secured loan, a distinction that determines the seller's rights on default and the buyer's position in bankruptcy. It covers lockbox and dominion arrangements, account debtor defenses, and the bankruptcy provisions that make asset-based structures behave differently from cash flow ones. Worked examples follow a facility from underwriting through a borrowing base that shrinks.