In addition, it is not uncommon, especially for mid-cap operations, for the capacity of the accordion facility to be limited to non-depreciable loans. Where amortization loans are authorized, initial lenders will generally attempt to ensure that the amortization profile of accordion debt is not more aggressive than that which applies to the original debt. Second, they will want to have the right to participate (either as a right to the first offer or as a right to the last vision) in any proposed increase in obligations. An accordion is an opportunity to increase credit exposure rather than buying on the secondary market (in cases where the debt is liquid). In addition, the effects that dilution would have on voting agreements in the context of financial documents will be avoided. This last point is particularly important when it comes to illiquid loans (for example.B. What facilities do we see with accordion installations? Consider the following example to better illustrate an accordion function. Suppose C1 already has a line of credit worth $1 million at Bank B1. Suppose C1 needs an additional $500,000 in capital to set up an additional production site on its premises.
For the occasion, C1 buys an accordion function of B1 which allows it to increase its total debt commitment from 1 million $US to 1.5 million $US. The guilt accordion is simple and inexpensive. They don`t need a new credit agreement, which makes it easier for borrowers to access businesses when they need it. In borrower-friendly markets, which have prevailed since about 2014, it is not uncommon for short-term borrowers to benefit from this flexibility, but with stricter restrictions in small and medium-sized enterprises and for unsusored speculative loans. The Loan Market Association`s credit agreement form for the use of leveraged financing transactions (the LMA credit document) now contains an option for such a function. The debt accordion can be especially useful for emerging startups with an innovative and innovative idea or an innovative product. Making additional credit increases conditional on activity exceeding pro forma expectations, gives financial institutions (FIs) some security, and ensures that more of them are willing to lend to a business that would otherwise be deemed too risky to lend. An accordion function is a kind of business option or clause in a credit agreement (or syndicated facility) that allows a company to obtain its line of credit (i.e.: The nominal amount under the agreement) or other debts with a lending financial institution. . . .