Scott Talmadge, a partner in Kaye Scholer’s Bankruptcy & Restructuring Department, spoke with The Deal’s Jamie Mason on unitranche debt, a financing structure whereby there is one credit agreement with one lien with the borrower, one group of lenders, and one interest rate.
In his interview, Talmadge details the structure of a unitranche financing facility as well as recent trends in the market. He also addresses the unique issues that can arise with unitranche debt, specifically referencing RadioShack’s recent bankruptcy case and its two distinct unitranche facilities.
On one of the main issues that arose in the RadioShack case because of the unitranche structure, Talmadge explained:
“The main thrust of the RadioShack bankruptcy was a sale of its core assets that were going to remain and stay in business. The buyer was going to be the second out lender in the liquid asset unitranche facility, but that buyer wanted to credit bid its debt. In order to do so, the first out lenders in the liquid facility needed to be paid in full in cash. The problem was that the other facility term lenders were suing the ABL lenders, saying that the relative priorities had switched by virtue of a restructuring transaction pre-bankruptcy. So, there was a litigation overhang, and the first out lenders wouldn’t allow the credit bid to go forward while that litigation threat was out there.”
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