Which facilities do we see comprising accordion facilities? The Loan Market Association form of loan agreement for use in leveraged finance transactions (the LMA Credit Document) now incorporates optional drafting for such a feature. In the borrower-friendly markets that have prevailed since around 2014, it has not been uncommon to see mid-cap borrowers enjoying this flexibility, albeit subject to tighter constraints in the lower mid-market and for non-sponsored speculative grade credits.

They are so labelled because they allow total commitments under the credit agreement to expand to accommodate incremental debt. 'Accordion features', also known as 'incremental facilities', have long been a common feature of large-cap sponsor term loan B (TLB) transactions. In this Q&A, we recap what they are, examine their increased use and highlight some points that lenders and borrowers should bear in mind.

As such, they permit and provide a mechanism for new, market-priced debt to be incurred on a more cost-effective basis than negotiating a new suite of credit documentation. It is not difficult to see why: they afford flexibility to incur additional (or in-creases in) debt facility commitments, which will typically benefit from guarantees and security on the same basis as other existing facility commitments. Accordion facilities are an attractive feature to sponsors and borrowers.

Accordion method strategy