Earlier this month, frozen food retailer, Iceland Foods, announced that it had refinanced its existing debt with a high yield bond issue and a super senior revolving credit facility. So, what is a super senior facility?
The contraction in traditional bank lending in the wake of the financial crisis gave rise to an increased use of bond financing, both secured and unsecured, in the leveraged acquisition market. However, such financing does not have the necessary flexibility for working capital and operational requirements; therefore, where there is a secured bond issue, it has become the practice to combine it with a super senior revolving credit facility (RCF).
Towards the end of 2013, the Loan Market Association (LMA) introduced a recommended form of agreement for super senior RCFs and an associated intercreditor agreement. These are based on the existing LMA recommended forms of documents for use in leveraged transactions using only bank debt, so much of the framework will already be familiar. There are, however, some important differences:
- With a super senior, there is only a revolving facility and no term debt
- Ranking – the super senior lenders and the bondholders rank equally, although the super senior lenders take priority as regards enforcement proceeds (this is in contrast to the senior lender/mezzanine lender relationship where the ability of mezzanine lenders to receive payment and act on default is restricted)
- As with the existing structure, security is held by a security trustee; however, in a super senior structure, either the super senior lenders or the bondholders can require enforcement
- Control of enforcement proceedings – this stays with the bondholders for a period, but can flip to the super senior creditors in certain circumstances (the ‘non-controlling’ creditors are protected by agreed security enforcement principles).
The new forms of LMA document are intended to be a framework for the parties. As always, lenders and bondholders will need to decide what they are comfortable with on any particular transaction.
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