A fresh look at acquisition financing terms

Author: Davis Polk & Wardwell | Published: 12 Mar 2020

As significant uncertainty and sustained volatility return to the debt markets for the first time since the financial crisis, we take this opportunity to reflect on some of the private equity sponsor and borrower-friendly terms that have become increasingly common in broadly syndicated loan (BSL) facilities, as well as certain themes that emerged in 2019 and early 2020. The most striking development has been the dramatic increase in the number and size of facilities that direct lenders have been willing to underwrite.

These alternative lenders are not only committing to take all or a large portion of the junior capital in a structure underwritten by BSL arrangers, but are now competing directly with arrangers on ever larger financing transactions. The cross-pollination of terms that results from this competition makes the trends described below relevant not just to the BSL market but also to alternative lending.

Leverage


First lien debt...