Recent developments in the credit markets and in restructuring practices have led to priming financings and non-ratable roll-ups of commercial credit agreement lenders into uptiered facilities in connection with out-of-court balance sheet restructurings. See Liability Management Transactions, Loan Syndications & Trading Association (Sept. 30, 2020). The origin of these provisions may help understand where the practice is and where it is headed.

Within living memory, credit markets were much different. Creditors extended credit either through commercial banks in the form of credit facilities, or through the high yield bond markets.

Commercial bank products typically included a rapidly amortizing term loan with a relatively short maturity (often as little as three years) and maintenance financial covenants. This kept a borrower on a short leash, either refinancing to access more credit or restructuring to address amortization burdens or breaches of maintenance financial covenants. Commercial bank products were usually held by a small number of banks and a significant portion of the debt was held by the arranger, aligning risk and underwriting.