Private Credit: Unitranche & Direct Lending Structures

Part One Review of Direct Lending Structures

• Part 1 of this private credit training course begins with an overview of the direct lending fund spectrum

• The “classic” structure

• “Structured” Unitranche

• Bifurcated Unitranche

• “Dual” tranche Unitranche

• Parallel Unitranche

• “Junior” Unitranche

• Syndicated Unitranche

• Bilateral vs. Clubbed Unitranche

• Holdco PIK

Coupon Structure

• The contractual return: Margins

• Cash

• PIK – PIYW vs PIYC

“Equity” options (Warrants & strips):

• How much

• How are they structured

• Key issues for lenders (information, representation)

• Potential problems for lenders (soft exits)

• Other forms of equity kickers – equity strips

Yield Protection Aspects

• “Typical” margins

• Margin ratchets

• Floors

• OID in private credit

• Call protection (Negotiation points): Rationale / why it matters to lenders

• Hard vs Soft Call Protection

• Scope of protection (voluntary prepayments, refinancings / re-pricings)

Permitted Baskets and Value Leakage Mechanisms

• Role of and rationale for “Permitted” baskets

• Why baskets matter

• Basket types: fixed, ratio & grower

• carry forward / carry back

Mechanisms for optimising baskets & increasing leakage:

• Reclassification mechanics re basket usage

• Re-allocation mechanics between baskets

• Impact on debt capacity

• Impact on restricted payments/value leakage

• Lender concerns and negotiation points

• Role of Unrestricted Subsidiaries

Overview of Key “Permitted” Baskets

• Permitted Indebtedness: Accordion facilities

• What’s the market in terms of caps on incremental Unitranche debt structure?

• MFN Issues: Rationale: pricing protection for existing lenders

• Application to incremental/additional debt

• Pricing comparison (margin vs “all-in yield”)

• Typical de minimis pricing cushion

• MFN sunset period

• Common carve-outs (M&A debt, baskets, junior debt)

• Scope issues (currency, ranking, sidecar facilities)

Delayed Draw Term Loans:

• Purpose and rationale in sponsor-backed deals

• Typical uses (capex, acquisitions, liquidity)

• Availability period and draw mechanics

• Conditions to utilisation (leverage test, no default)

• Economics: commitment fees and drawdown fees

• Relationship with incremental facilities

• Synthetic PIK

Permitted Acquisitions:

• “Typical” terms

Other Permitted actions:

• Distributions – how are these policed?

• Sponsor fees – limits

• HoldCo admin fees – market approach

Mandatory Prepayments (Focus on Cash Sweeps Key Aspects)

• Mandatory prepayments (Disposal proceeds): Why this matters for private credit

• The risk for super senior lenders

• The three market-based approaches

Mandatory prepayments (Excess cash):

• How prevalent are they

• How many step-downs

• A different approach- Banks vs Funds

Review of other mandatory prepayments

Change of Control & Portability Exceptions

• Private credit training looks at the change of control: Rationale: lenders underwrite the sponsor and strategy at closing

• Definition of “control” (voting rights, board control, ability to direct policy)

• “Permitted controlling investors” concept

• Additional triggers (asset sale, loss of security holding structure)

• Economic interest / “skin in the game” considerations

• Typical consequences (mandatory prepayment or lender put option)

• Interaction with call protection

Portability:

• Benefits for sponsors (facilitates exit and simplifies buyer financing)

• Typical sunset period (often 1–2 years post-closing)

• Limits on usage (often permitted once only)

• Portability fee payable on exercise

• Incoming sponsor requirements (approved list or minimum AUM)

• Conditions to exercise (no default, leverage test, minimum equity contribution)

Part Two NAV Loans (Portfolio Financing)

• Purpose and rationale for NAV facilities: Secured on the NAV of the underlying portfolio rather than uncalled LP commitments

• Typically used mid-to-late in the fund life cycle, once investments are established

• Typical use cases: support follow-on investments in portfolio companies

• provide liquidity to the fund without asset disposals

• accelerate distributions to LPs / dividend recap

• bridge to exits or secondary transactions

Structural features:

• Borrower often an SPV or HoldCo above portfolio assets

• Security over equity interests in portfolio companies and related cash flows

• Borrowing base linked to portfolio valuation and diversification

Key risks and lender considerations:

• Valuation volatility of the underlying portfolio

• Concentration limits and eligibility criteria

• Reliance on exit proceeds for repayment

Market context:

• Increasing use by private equity sponsors seeking flexible, non-dilutive liquidity

• Lenders typically specialist NAV lenders or private credit funds

Financial Maintenance Covenants

• Review of the standard LMA covenants

• Cov-lite vs Cov-loose The current market approach to covenants – how many and which ones?

• What about headroom/cushion –what’s the market?

Separate covenants for the Super Senior lenders

• How are they structured? - Springing covenants

• Additional headroom vs the standard covenants

EBITDA add-backs

• Exceptional items – market limits

• Cost savings – market limits

• Impact on other aspects of the loan

What is the position on equity cures

• Are EBITDA cures allowed

Auto-cov reset mechanics

• Triggers

• Timing

• Reset levels/headroom?

• Reset profile (base case implications)

Intercreditor Considerations

• A direct lending course deep dive into concerns of the Super Senior Lenders (SSL)

• Potential problems for Super Senior Lenders

• Solutions for the Super Senior Lenders: Controls (veto rights) on Amendments and Waivers (A&Ws)

• Review the list of A&Ws which require separate SSL approval

• Which A&Ws are problematic for the Unitranche

• Disenfranchisement of Sponsors

Role of Material Events of Default (MEDs):

• What are the MEDs the SSLs typically seek?

• Which MEDs are problematic for the Unitranche?

Enforcement Rights & Standstills

• Who is the Instructing group?

• The Option to Purchase: Potential problems

• Alternative lending investment solutions in practice

Enforcement Standstills on the SSL:

• Why are they needed

• How long are they (market)?

When the SSL can take enforcement action:

• Review the main circumstances when this applies

• What controls/protection does the Unitranche have?

Step-in rights for the Super Senior lenders (SSL):

• What is the current market position?

Distressed Disposals: Potential Problems and Solutions

• Why does this matter?

• Position when the Unitranche is the Instructing Group: Steps the SSL can take to protect their interests

Market Position when the SSL is the Instructing Group:

• How does the Unitranche protect its interests?

• Fairness opinions – Who provides these?

• Competitive sales process – what does this mean

• Other methods to protect the Unitranche

Guarantees: Rationale and Key Considerations

• Rationale (reputation & value preservation)

• Key considerations

• Quantum of support

• Trigger events

• Use and Application of Funds

• Commitment level – hard vs soft?

• Finance Document?

• Other considerations

Intercreditor Arrangements in Combined Unitranche and ABL Structures

• Aims of ABL lenders (retain control post distress)

• Who is the ” Instructing group” & controls enforcement

• Enforcement standstills – how long

• Collateral - one or two pools of collateral?

• Security and Facility Agents

• Potential solutions

Training Objectives

Participants taking this unitranche and direct lending course will:

• Understand the structure and evolution of the European direct lending and unitranche market.

• Review the main unitranche structures used in sponsor-backed transactions. This includes bifurcated, structured and HoldCo PIK.

• Analyse key commercial terms and yield mechanics, including margins, call protection, PIK features and pricing protection.

• Understand how documentation terms shape lender protections, including permitted baskets, covenants, headroom and equity cures.

• Examine new developments in private credit structures, including delayed draw term loans and NAV/portfolio financing facilities.

• Understand the increasing importance of portability provisions and sponsor exit mechanics.

• Review key intercreditor and enforcement issues between super senior lenders and Unitranche lenders.

• Analyse lender protections in stressed and restructuring scenarios. This includes guarantees, distressed disposals and covenant resets.

Training Course Summary

Direct lending and unitranche financing continue to grow across Europe as private credit funds play a significant role in leveraged finance transactions.

Large inflows of institutional capital and the ability of funds to provide flexible and bespoke financing solutions have enabled direct lenders to compete directly with traditional bank-led leveraged loan markets. As the market has developed, unitranche financing has evolved well beyond its original structure.

Funds now provide a wide range of products, including structured and bifurcated unitranche facilities, holdco PIK instruments and hybrid capital structures alongside traditional bank facilities. Increasingly, lenders are providing undrawn facilities such as delayed draw term loans and acquisition or capex lines, allowing sponsors to fund future growth and acquisitions.

Another important development is the emergence of portfolio-level financing solutions such as NAV facilities, which allow sponsors to unlock liquidity from mature portfolios, support follow-on investments and speed up distributions to investors.

Documentation in the market has also evolved. Negotiations now focus on permitted baskets, portability on change of control, covenant headroom, EBITDA add-backs and auto-covenant reset mechanics, as well as the increasing importance of guarantees and other lender protections in restructuring or distress scenarios.

Redcliffe Training's private credit course provides a practical review of these developments and analyses the commercial and documentation issues in modern unitranche transactions, including:

• Key intercreditor issues

• Enforcement rights

• Negotiation points between lenders, sponsors and borrowers