21 November 2019

Product developments in leveraged loans | Year in review

This year has seen the Australasian leveraged loan market build on the product developments we have seen in recent years (see our alert, The Aussie Term Loan B vs Unitranche / other leveraged finance products.)

The key themes we are seeing emerge are:

  • Borrowers selecting between different structures strategically to suit the underlying credit and investment thesis
  • an increase in the number and type of investors that are prepared to participate in non-traditional structures; and
  • a pick and mix approach on key terms where Borrowers are prepared to agree terms not common to a specific structure in order to access other features

Borrower choice

The menu of available debt financing structures has expanded considerably beyond senior bank led financings. Demonstrating the breadth of options this year has seen, among other deals:

  • Brookfield raise a $2.15bn senior bank financing to fund its acquisition of Healthscope;
  • Navis Capital raising $Xm senior bank debt financing to fund its acquisition of Device Technologies Australia
  • KKR’s AVC group raising bank debt to finance various acquisitions, in particular the innovative financing of Coles Queensland Pubs group
  • PAG accessing a hybrid institutional/bank financing to fund its acquisition of the Craveable Brands business from Archer
  • Experience Australia (Quadrant portfolio company) refinancing its senior bank debt into a unitranche facility
  • BGH Capital utilising a unitranche structure to fund its acquisition of ASX-listed Navitas via scheme of arrangement
  • TPG’s unitranche facilities to fund its acquisition of ASX-listed Greencross
  • Goldman Sachs arranging a ~A$800m equivalent first lien/second lien term loan ‘b’ with covenant structure for Icon Cancer Care
  • Advent International’s offshore unitranche/RCF financing of its acquisition of Transaction Services Group

Borrowers are selecting structures to meet deal specific requirements around leverage, pricing, sizing and flexibility of terms.

Increased participation

We are seeing an increasing number of investors that are prepared to participate in non-traditional structures. The increased participation is being driven in part by:

  • a hunt for size and yield – there are simply not enough vanilla senior lender deals available to satisfy investor demand to put capital to work at the yield levels that are required
  • the relative standardisation of documentation – while there are no APLMA forms for unitranche or term loan ‘b’ deals the number of participants in underwriting these deals and producing the relevant documents has remained relatively small, this has led to a level of harmonisation among documents permitting investors to focus on commercial terms

The market is also experiencing a number of listed credit funds coming to market (for example KKR’s $925 Australian listed credit fund).


Borrowers (and Arrangers) are not feeling bound by the traditional definition of a product type – for example:

  • including a single financial covenant in an TLB structure increases the investor universe prepared to participate in the deal opening up larger facility sizes;
  • senior banks deals are being down with 2 covenants (Net Leverage Ratio and Interest Cover Ratio) instead of a traditional four covenants (Net Leverage, Interest Coverage Ratio, Debt Service Coverage Ratio and Capital Expenditure limits);
  • amortisation can be pushed down (on Senior Bank deals) or pushed up (on institutional deals) in exchange for pricing

Banking & Finance partner Yuen-Yee Cho comments:

"King & Wood Mallesons is pleased to have acted on the ground breaking deals discussed in this article.  We expect that 2020 will see a continuation of the trends identified in this article.  KWM remains uniquely positioned to assist both borrower and lender clients." 

KWM acted on each of the transactions described to in this note.

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