The credit contract may also allow security officers to make any necessary changes to the transaction security documents necessary to ensure (i) that accordion facilities coincide with existing debt facilities; and (ii) that the transaction guarantee be shared by the financial parties on a pari passu basis. Lenders of accordion facilities will also be required to provide a precondition for the introduction of the accordion facility to accede to the inter-credicator agreement, so that they are subject to the provisions of this agreement (e.B, restrictions on enforcement measures and revenue enforcement). As a general rule, these establishments have a cap that limits the total amount that can be borrowed and the maximum number of time used. However, some lenders will offer more flexible rules and may even offer unlimited debt agreements based on the borrower`s profile. The characteristics of the accordion have become more and more common in the debt credit market. Debt agreements, such as the portable, box-shaped musical instruments that name them, can be pulled and stretched to lengthen the size as needed, creating flexibility for borrowers. Many credit facilities have an „accordion” function that allows a borrower to gradually increase availability under an existing credit facility. – making it a popular option for borrowers considering a possible takeover. This credit note outlines some of the most important considerations about these incremental facilities, both from the borrower`s and the lender`s perspective. Here is the intro: when available, an incremental facility allows the borrower to properly add financing within its existing capital structure, without the need to refinance or „reset” other lenders under the existing loan agreement, or to develop separate credit or hedging documents and enter into complex intercreation agreements.
It can therefore be a very quick and inexpensive way to structure acquisition financing. An accordion feature is a kind of business option or clause of a loan agreement (or syndicated facility) that allows an entity to increase its line of credit (i.e. the principal amount under the agreement) or other commitments to a lender financial institution. Accordion functions are generally acquired by companies that require more working capital in anticipation of high growth scenarios, including potential expansion opportunities. In addition to the leverage test, a „freebie” (either a fixed amount or an amount calculated according to DemKO) can be added to the accordion debt ceiling. Another important feature of the accordion that benefits the business is the optional credit increase. Thus, if the company can grow without making additional debts, it can make that decision. Accordion facilities are an attractive feature for sponsors and borrowers. It is not difficult to understand why: they offer flexibility to obtain additional (or too nivas) commitments to debt facilities, which will generally benefit from guarantees and guarantees on the same basis as other existing facility obligations.
As such, they allow and offer a mechanism for new debt securities that are cheaper at market prices, less expensive than trading a new set of credit documents. For companies, especially a company with an innovative idea or product, the accordion function is advantageous in several respects. First, it allows the company to grant more favourable terms to lenders. This helps attract more lenders to businesses looking for loans that would otherwise be considered too risky.