Unlocking the mysteries of super senior revolving credit facilities

If you spend any time in the world of leveraged finance, you’ve probably heard plenty of talk about “super senior revolvers” or “SSRCFs”. For some, these seem the domain of specialists, walled off behind legal jargon and technical clauses. As solicitors who’ve helped guide countless clients through the SSRCF maze, we are here to demystify the key points. Whether you’re a seasoned private equity hand, a banker or just SSRCF-curious, this article is for you.

What is a super senior revolving credit facility (SSRCF)?

A SSRCF is a class of revolving credit, which sits atop the repayment waterfall, meaning SSRCF lenders get paid before the other senior lenders if things go sideways. That position brings strict rules and a lot of legal fine print. Banks remain pretty much the only institutions that are able to provide revolving credit or other clearing/ liquidity lines, but the pricing remains tightly controlled and accordingly they are not particularly profitable. The super-senior ranking (as well as the hope of a wider relationship play and the opportunity to potentially be able to provide more profitable facilities) is the quid pro quo for bringing the commercial lending banks to the party.

The key provisions

• The SSRCF’s expiry (or “termination date”) is usually at least six months shorter than the main unitranche facility. This ensures super senior lenders are out of the picture before the rest of the debt matures.
• There may or may not be requirement for a “clean down” (where you have to pay down the facility to zero for a period), but lenders should consider it, especially for pure liquidity lines. No one likes a revolving door of perpetual debt.
• Lenders can “drawstop” (block further borrowing) if there’s a default. In smaller deals, any default may do it; in larger deals, it is likely that only significant (material) events of default will trigger a drawstop. On sponsor deals, lenders will often agree that rollover loans are permitted unless there is a Declared Default.
• There will usually be a standalone financial covenant just for the SSRCF, usually a much easier leverage ratio or a lower minimum EBITDA. If this is breached, it’s a major event of default that can’t be waived by the unitranche/senior lenders alone.
• Independent acceleration: SSRCF lenders need the right to accelerate the facility (i.e., demand repayment) if a material event of default occurs and continues unremedied (or unwaived by the SSRCF lenders). This right should match those of the main lenders, including the ability to direct enforcement of security.

Material Events of Default (MEoD): the greatest hits

Every facilities agreement including an SSRCF should spell out what is classed as a material event of default. The following are usually included as standard:

• Clean-down breaches (if relevant)
• Non-payment of amounts due under the SSRCF (possibly with a de minimis threshold)
• Breaches of the SSRCF financial covenant
• Failures in providing information (although 15-30 days leeway on late accounts will generally be allowed)
• Breaches of anti-corruption or sanctions clauses
• Breaches of the negative pledge (i.e., someone else is granted security ranking pari or senior to the SSRCF)
• Significant disposals without proper process or within capped thresholds (capped per disposal and a separate aggregate limit over the life of the facility)
• Insolvency events, especially relating to major companies in the group
• Breaches of the intercreditor agreement, unlawfulness or repudiation (a refusal to fulfil obligations under the contract or indicating that they will breach the contract)
• Missing required SSRCF lender consents for any amendment, waivers or where their express consent is required (for example protected SSRCF rights, any changes to the MEoDs or related definitions).

Caps and thresholds are crucial here and your solicitor can assist with the nuances around these.

Chasing waterfalls

SSRCF and super senior hedging liabilities rank at the front of the queue for enforcement proceeds (subject to certain debts given preferential treatment by law), except sometimes in certain “mandatory prepayment” events in a non-enforcement situation (like a change of control or sale of the whole group).

Don’t miss the vote

• Voting rights on key changes (like what is classed as a material event of default, drawdown terms, margin changes, new debt ranking above you or acceleration) should always require majority SSRCF lender consent.
• Other critical changes, like shortening facility terms, releasing security, changing the guarantee or reordering priority, should need unanimous lender approval (this is standard but takes on more relevance in the context of a SSRCF).

Enforcement rights, standstill and “the option to purchase”

• If a default happens, SSRCF lenders can enforce their rights, subject to a standstill period (typically 90 days for SSRCF non-payment, 120 days breach of the SSRCF financial covenant and 150 days for any other MEoD). But this can be overridden by the Majority Lenders taking any Enforcement Action themselves, typically subject to a back-stop of 180 days after which the SSRCF lenders can step in.
• Senior lenders have the right, during this period, to buy out the SSRCF plus any super-senior hedging at par (full face value, cash), cancelling any undrawn commitments.

Consultation and turnover requirements

There’s usually a (10-20 business day) consultation period before taking major enforcement steps (either by the Majority Unitranche Lenders or the Majority SSRCF Lenders), which from the SSRCF Lender’s perspective should run concurrently with the usual standstill period or at the very least not extend beyond the longstop date.

Loss-sharing, disenfranchisement and hedging

• Senior lenders usually can’t vote on SSRCF matters if they’re also in the SSRCF syndicate, avoiding conflicts of interest.
• A special policy applies to hedging: only hedging liabilities up to an agreed cap will usually rank super senior with the remainder ranking pari passu with the unitranche facilities.

Why does all this matter?

Super senior revolvers are a finely crafted balancing act giving banks extra comfort (resulting in them assuming a far lower risk and therefore a lower capital charge) while allowing private credit and sponsors to access liquidity and working capital and cash management facilities, at a lower price.

If you find yourself off-piste with tenor mismatches or disposal caps, don’t panic! With the right legal advice, you can navigate the complexities of super senior facilities with confidence.