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Credit markets are vital sources of funding for the acquisitions and mergers that keep the economy thriving, and there is much to consider when embarking on a loan transaction. Ensuring accessibility and liquidity of these financings may avoid distressed situations or restructurings down the road. One critical step is negotiating credit agreements that provide flexibility to allow for the unforeseen. Smooth, seamless and successful outcomes require extensive familiarity with deal documentation and benefit from around-the-clock availability. Keeping these essential tips top of mind will help ensure an optimal outcome for your loan.
Loan Documentation Tips
Loan documentation is a critical component of a transaction. A well-crafted loan agreement provides legal protection for the involved parties, ensures compliance with regulations, clearly establishes terms and conditions of the financing, outlines collateral, and serves as a record-keeping mechanism. Following proper procedures enables borrowers and lenders to foster transparency.
Through this transparency, both deal parties are aware of their rights and responsibilities under a loan agreement. While there is some standardization within the documentation, customization is an important element. As such, language should allow for limited risks for borrowers and lenders, and there should be no room for ambiguity or confusion under the credit pact.
What’s more, in recent years, language within credit agreements has come under heightened scrutiny so that secured lenders may mitigate any potential leakage or layering risk. Being aware of the various liability- management exercises and types of transactions that could leave secured lenders primed is of utmost importance.
Keep these tips in mind when drafting documentation language:
- Transfer of Intellectual Property: Consider eliminating the transfer of intellectual property or other assets outside of the creditor group, including clear designation of unrestricted subsidiaries.
- Restricted Payments: Limit the issuer’s ability to make certain payments or distributions to cash rather than in stock dividends.
- Subsidiaries As Guarantors: Where possible, ensure that all subsidiaries are guarantors, not just wholly owned subsidiaries. Administrative agents should also consider including express clawback provisions to allow recovery and tighter internal control of outgoing payments.
These are just some of the considerations to contemplate when crafting credit agreements. A seasoned, independent third-party can facilitate inclusion of such key provisions to prevent priming from happening. Several transactions from the past several years have provided insights into provisions lenders should include in credit pacts that will prevent loopholes that leave them out of the money.
To that extent, consider including blanket and stop-gap covenants to restrict a borrower’s ability to incur new debt or circumvent restrictions on new debt. The inclusion of sacred-rights’ protections that require unanimous consent or a super-majority vote of lenders may prevent some lenders from unilaterally altering terms that could put minority lenders at a disadvantage.
Among some of the notable transactions that have initiated provisions for lender protections are Serta, Chewy, and J. Crew blockers. Keeping these issues and examples top of mind when negotiating credit pacts will minimize problematic outcomes.
Professional Loan Agency Can Make a Difference
Choosing a third-party administrator to construct and execute a successful transaction plan requires careful selection. As more corporate borrowers seek direct or syndicated loans to finance their business needs, more participants are entering the playing field, including loan-agency service providers. But not just any provider will do. Superior client service can be one of the key differentiators setting apart these providers.
Using a provider that offers and maintains a simple, secure online portal that allows for easy information input and a quick response time is essential. What’s more, 24/7 accessibility from multiple locations, familiarity with international loan documentation, legal standards, security requirements, and restructuring processes are desirable qualifications when seeking a third-party provider.
Streamlining the lender's experience and having the capability to support multijurisdictional transactions is one way for deal parties to stay ahead of the competition, save time, and remain efficient. As such, outsourcing loan administrative tasks allows staff to focus on dealmaking and winning the next mandate.
Broadening Efficiency and Accessibility As the Loan Landscape Evolves
The expansion and accessibility of the leveraged-loan market is inevitable as corporate borrowers access the institutional loan and direct-lending arenas for funding acquisitions, refinancings, and working-capital needs. While the broadly syndicated loan market has evolved to become more transparent and widely available to investors, creating an efficient and accessible market for the illiquid private-credit market is essential for its continued—and undeniable—growth.
Given regulatory guidance requirements, fund managers must report holdings, pricing information, and valuations on a quarterly and annual basis, providing a glimpse into the opaque nature of private-credit assets. A third-party administrator should help navigate the evolving landscape in the loan market and provide insights to managing your portfolio. Key benefits of using an independent third-party administrator include responsiveness to inquiries and availability when you need it, not when they are ready. They should also provide insights into transactions, assist in problem solving and communicate status updates over the course of a deal on a timely basis.
Transparency Through Digitalization
There was a time when the broadly syndicated loan market was not as easily tradable as it is today. The advent of actively managed bank-loan mutual funds and collateralized loan obligations (CLOs) made the asset class a viable investment option for both retail and institutional investors. As such, there are buyers and sellers of syndicated loans that are traded actively on a secondary market.
Not so for the direct-lending market that has long been operated with a buy-and-hold philosophy by which one or two lenders provide a loan to a company and hold it until maturity.
Through the innovation of business-development companies (BDCs) and interval funds, retail investors attained some accessibility and transparency into private-credit loans, given the required reporting on a quarterly and annual basis. Yet, as the market matures and its reach extends, new ways to promote liquidity and transparency need to evolve.
Indeed, the private-credit market is poised to reach $2.64 trillion in assets under management by 2029, according to Preqin.1 The U.S. government’s pro-business and pro-AI stance—as well as its easing focus on regulating the direct-lending market—is paving a path toward digitalization of the once-opaque market.
Already, banks are staffing trading desks with professionals who may ultimately buy and sell private credit. Earlier this year, CUSIP Global Services announced the launch of a nine-character alphanumeric security identifier for direct loans, syndicated loans, and collateralized loan obligations that will allow market participants to quickly and accurately determine asset-level information for trading, clearing, settlement, and portfolio management.
What’s more, several asset managers are teaming up with digital platforms to tokenize private credit. Investors will be able to access a fund through an on-chain product to ascertain net-asset value across blockchain ecosystems to enhance liquidity and accessibility. Putting real assets on chain eliminates prolonged settlement times and expedites trading, two factors that have been notorious points of pain for traders.
Keeping current with the efficiencies of the primary- and secondary-loan markets has never been more crucial than in these changing times. Be sure your loan agent is informed and keeping you current on the shifting developments to support a successful transaction.
1Preqin, “2025 Global Report: Private Debt,” December 2024
Keith Miller
Executive Director, Loan Agency tel:44-7494-503-154
Keith is an Executive Director based in London and responsible for the European Loan Agency solution.
As a seasoned professional in the loans market, Keith has more than 23 years of experience in the asset class working in global banks, credit funds, and third-party administrators in roles across operations, product, and business development. Immediately prior to joining SRS Acquiom, he was the Global Head of Private Debt at Apex following the acquisition of Sanne Group where he held a similar position. In this role, he was responsible for the strategy and performance of the global debt business.
Keith received a Bachelor of Science degree in international management from the University of Manchester.