Q&As

How can I ensure security and guarantees remain effective on a refinancing?

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Produced in partnership with Max Millington of Pinsent Masons
Published on: 26 May 2016
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Why would my client want to leave existing security and guarantees in place?

On a refinancing, all indebtedness of a borrower being refinanced (Refinanced Indebtedness) is repaid, unutilised commitments cancelled, and all related credit support (guarantees and security) in respect of the Refinanced Indebtedness falls away by operation of law, or (more often in practice) is otherwise released. This enables the borrower and credit support providers to grant fresh credit support to the incoming lender or lenders, or its or their agent or trustee.

However, a borrower would often prefer to be able to leave in place the existing credit support arrangements, in order to save the time and expense of creating and perfecting new credit support arrangements. Incoming lenders also benefit from such an approach, as they may be able to take advantage of ‘hardened’ arrangements which were put in place prior to the commencement of the suspect period. For more information on hardening periods and claw-back risk, see Practice Note: Introductory

Max Millington
Max Millington

Partner, Pinsent Masons

Max’s practice involves advising financial institutions, private equity sponsors, borrowers and management on mid-market leveraged and corporate finance products, financial restructurings and stressed/distressed positions.
 
Within that universe, he has a particular focus on advising in relation to private debt: direct lending, unitranche, first-out/super-senior, junior debt (mezzanine, second lien, holdco PIK) and rescue capital.

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Jurisdiction(s):
United Kingdom
Key definition:
Liquidation definition
What does Liquidation mean?

The process by which a company's assets are realised for the benefit of its creditors.

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