As has already been said, “alliance-lite” credit contracts with a renewable tranche only bring the financial pact to life when revolving loans are pending or letters of credit are issued, sometimes beyond a cushion. In this context, “b-lite” credit contracts generally provide that the financial pact is not reviewed when letters of credit are secured by cash. Indeed, the letter of credit guarantee eliminates the credit risk associated with it and puts revolving lenders in the same position they would have seen themselves if the letters of credit had not been issued. This article focuses on current market practice with respect to the important covenant-lite provisions that deal with a revolving credit facility and the sometimes difficult interaction between the rights of revolving lenders in these transactions, which enjoy the direct benefit of financial protection of support obligations, and the issuer`s terms, which do not. It should be kept in mind that the guarantee of letters of credit for renewable lenders is a measure that benefits a group of lenders (i.e. revolving lenders) without extending the same benefit to term lenders. Indeed, the money reserved to guarantee the letters of credit is intended for the execution of the specific letters of credit for which the cash guarantee was authorized to end before another application of this liquid means is granted to satisfy other obligations arising from the credit contract. On the basis of the deal-by-deal, it is necessary to consider whether this agreement is compatible with the proportional treatment obligation of all lenders, since this provision is included in the corresponding credit agreement (formulations vary). If this is not the case, the ability to certify letters of credit on a voluntary basis without violating the “pro-rata” requirement of “all lenders” should be expressly provided for in the credit agreement. Earlier this year, Term Loan Lenders, in exchange for a premium that is often between 25 and 50 basis points above the margin for a comparable credit contract with traditional financial alliances, was prepared to go “alliance-lite” and accept the absence of financial asset alliances for good borrowers and the right leverage profile. But renewable lenders generally continue to demand certain financial commitments for revolving loans. A cushion for revolving loans can also be negotiated on a case-by-case basis, although such a cushion is clearly not as common as an akkreditasch cushion. From time to time, a cushion can be used for both letters of credit and revolving credits (in this case, the federal government comes to life when the total amount of letters of credit issued and outstanding credit exceeds the cushion), allowing a borrower to obtain some revolving credits without triggering the applicability of the Federal Union when the remaining amount of letters of credit is under the cushion.
In a typical “alliance-lite” credit contract with a revolver, the financial pact is examined only on the basis of maintenance at the end of a quarter of activity, when revolving loans or letters of credit were issued at that time, in any event, beyond an applicable cushion. A central point of disagreement, which has not yet been fully settled in the marketplace, is whether the federal government should also be considered on the basis of recitations or letters of credit.