Actionable Ideas for Companies and Sponsors

Structuring Financings to Provide Flexibility Around the Junior Portion of the Capital Structure

With the recent volatility in the leverage finance market, companies and sponsors have begun to structure their committed acquisition financings to provide the flexibility to access either the second lien term loan or the high yield bond market for the junior portion of their capital structures. This is due to the fact that historically the second lien term loan market is the first to close when investors begin to go off risk. This approach provides issuers with maximum flexibility in completing the acquisition financing, and this flexibility gives the underwriting banks additional comfort and gives issuers ultimately better execution around the junior portion of the commitment, by providing the ability to access a deeper high yield market to improve execution if the second lien term loan market isn’t favorable at the time the deal needs to launch. By structuring the commitment with optionality to access both markets, companies can also maximize the quantum of committed financing available.