I'm trying to model in a cash flow sweep (excess cash after mandatory payments) and wanted to confirm if this should only apply towards the Revolver and TLB only? I've never seen ECF's go towards senior notes, subdebt (both 2nd Lien or Mezz), but can someone confirm is this accurate?
Practicing for a case so not a realistic cap structure but includes TLB, Senior Notes, 2nd Lien and Mezz. Would there ever be a case where the junior tranches would take a share of the ECF? I assume only once the senior has been paid off, correct?
It’s possible but from what I’ve seen recently and the trend seems in general for very cov-lite credit docs. Might be fair to say that in general most of the lbo paper being written does not have contractual ecf sweeps built into the docs. It might still be a conservative thing to model in that all ecf goes towards debt paydown but not sure how realistic that is these days. I definitely welcome someone with more direct exp to comment and/or override me on this
when you get into the nitty-gritty of actually analyzing and/or creating credit docs, anything is kinda possible within reasonable limits. Especially if you got some fairly aggressive lawyers on your side in my humble opinion
There are a couple of scenarios where 2nd lien debt can be paid down while 1L is outstanding. Some excess cash flow sweeps will be written such that if a 1L holder declines a repayment, it gets applied to the 2L. There are negative covenants which stipulate when and how you can prepay junior debt, usually governed by a max net leverage ratio.
It’s typically prohibitively expensive early on to prepay mezz or similar junior debt because they often come with non-call provisions for a few years, which means you’d have to accelerate all interest through the non-call date to pay down (ie, there’s no savings from repaying it early).
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