Despite the COVID-19 pandemic, 2020 proved that the European private debt market remains strong. A 2021 Preqin Private Debt Report revealed that there were 504 active European private debt managers in 2020, up from 443 in 2019, with $86 billion (equivalent) in dry powder as at June 2020. Further, according to the GCA Altium Midcap Monitor, private debt deal volumes nearly doubled between Q3 and Q4 2020. This alert looks at certain developments of creditor rights in private debt financings including First Out/Last Out arrangements as part of a syndication of term loans on a super senior. These continue to form part of the private debt market despite many private debt managers having raised funds with lower return hurdles.

Discussion points on super senior term loans on unitranche structures

First, the identity of first out lenders appears to be evolving. Historically, the syndication strategy was directed at banks but more recently, we have seen asset managers such as pension funds take a super senior term loan position on private debt deals. Although creditor rights between super senior revolver and unitranche creditors have generally been settled for quite some time now, the protections that super senior revolver creditors can achieve do vary between deals. Consequently, perhaps, super senior term loan creditors have been known to push harder for increased protections, whether or not the term loan is pari with the revolving line or sits “between” the revolving credit facility and the unitranche. Examples include:

  • renegotiating commercial terms of the transaction after it has been signed, including requests (a) to provide additional ROFO/ROFR rights on the incurrence of additional first out or super senior term loan indebtedness, (b) to impose additional limitations to the synergies pro forma rules either in the form of limiting them to cost synergies, imposing tighter caps on the amounts that can be counted and restricting the period for which the amounts can be applied, (c) to remove materiality qualifiers on events of default, (d) to reduce the percentage threshold applicable to the significant disposal regime, which requires asset disposal proceeds to be paid to the super senior debt first, and (e) to disallow the application of equity cure proceeds to EBITDA;
  • requesting that the security package extend to additional assets, for example, all receivables rather than only intra-group receivables; and
  • attempting to lengthen the list of Material Events of Default, giving the super senior term loan creditors more circumstances under which they can take control of the enforcement process; the most common of these requests that we have seen are the incurrence of additional pari or prior ranking indebtedness and a breach of the acquisition and permitted payment undertakings.

The above examples demonstrate that super senior term loan lenders will not always rely on their higher ranking in the enforcement proceeds waterfall to get comfortable with the credit profile of the borrower.

Issues specific to super senior structures documented under an agreement amongst lenders

Although less common in Europe than in the US because of the various insolvency regimes to contend with, some super senior syndications are documented via an agreement amongst lenders, which regulates the rights and obligations of each of the first out and last out creditors. In these situations, the enforcement mechanics must be considered carefully. For example, the standstill periods will be shorter than the standard 90-, 120- and 150-day standstill periods applicable to the super senior revolving creditors and, whichever periods are applied, they must still allow the last out creditors sufficient time to be able to commence and complete an enforcement process first. There is a delicate balance to be struck here as the first out lenders may not necessarily want to enforce given their (usually) limited economics but they also must be afforded the right to do so should the last out lenders not be proceeding for whatever reason. Further, if the last out lenders have commenced an enforcement process, they must be given sufficient time to complete it without potential interference from the first out lenders. Typically, the documentation provides that if the first out standstill period has expired and the last out lenders have not taken material action, the first out will be able to take control of the process.

Further, the provisions relating to schemes of arrangement, where available, are usually negotiated carefully. To our knowledge, agreements amongst lenders have not been tested in the English courts. Therefore, it is not clear how they would be treated on an application by the borrower to the court for a scheme of arrangement and whether the first out and last out creditors would be treated as separate classes or the same class under a scheme of arrangement. If they were to be treated as a single class, which set of creditors should control the vote in the scheme? It is a difficult question to answer upfront given that it is not possible to predict what the borrower would propose to the court under a scheme. For example, should the borrower request a reduction in the margin resulting in insufficient amounts to be turned over to the last out creditors, should only the last out creditors be entitled to vote? Given the uncertainties and the wide range of proposals that can be made to the court under a scheme of arrangement, a pragmatic solution may be that a majority or super-majority of each of the first out creditors and the last out creditors should be required to vote in favour of the proposals for either the first out creditors or the last out creditors to vote in favour of the scheme of arrangement. If these voting thresholds cannot be achieved, while the borrower will not be afforded the flexibility of a scheme of arrangement (with the possibility of amendments being approved on a lower percentage of creditors), it will be in no worse a position than it is under the terms of its financing documents, which will still govern its relationship with the lenders.

Potential future trends under unitranche structures

In the past few months the attractiveness of the super senior revolver to bank investors has been waning, with fewer banks interested in assuming the super senior revolving exposure on the terms and pricing offered. Certain private debt funds are able to provide super senior revolving facilities, although frequently this is not an ideal position for either the fund or the borrower. From the fund’s perspective, the likely added administration and reduced returns of operating a revolving facility in many cases make this sub-optimal and, from the borrower’s perspective, the absence of ancillary banking facilities that have traditionally been made available by banks as part of the super senior revolving facility may restrict the borrower’s operational flexibilities. Nevertheless the provision of revolving facilities (whether on a super senior or a pari passu basis) on a long-term basis by funds going forward would remove one of the common issues encountered by borrowers utilizing unitranche financing and would aid the efficiency of the unitranche product.


The unitranche structure has proved to be an incredibly flexible structure and has evolved over the past 10 years from being solely a mid-market product to one that is capable of financing transactions with debt amounts from double digit millions up to hundreds of millions of dollars (and sometimes the billions of dollars). Investors and sponsors have been entrepreneurial and forward-looking in dealing with the challenges that have presented themselves. There is plenty of evidence to suggest that this approach will continue going forward and that the product will continue to evolve and adapt to the availability of credit and the requirements of sponsors.

Struan Clark, London Trainee Solicitor, contributed to the drafting of this alert.