Linking strategy

Summer sunset September 2021 | Issue 142 – Fast Cash: Swingline Loans in Fund Financing | Cadwalader, Wickersham & Taft LLP


Over the past few months, we have seen several requests for inclusion of a swingline facility in the documentation for the Call Capital Loan for Syndicated Facilities. Swingline loans are normally made available as part of a revolving credit facility by one of the lenders referred to as the “Swingline Lender”. Swingline loans are designed to give the borrower faster access to funds than would otherwise be allowed by the notice periods prescribed in the credit agreement, which generally require at least three working days’ notice for loans. in euros and one working day’s notice for base rate loans. In addition to offering same day financing, the swingline facilities also provide the borrower with greater flexibility by allowing swingline loans to be applied for at a date later than the financing date. Swingline loans can be funded on shorter notice as they are advanced by a single lender, which is often the lender acting as administrative agent.

As a swingline facility is often funded by a single lender, there is often more flexibility in the size of the loan that can be requested. A swingline facility often gives the borrower access to loans of a lower minimum amount than would otherwise be required for a syndicated loan from all lenders participating in the credit facility.

Swingline installations have several key characteristics. First, the swingline lender is usually obligated to extend swingline loans only within the limit of its revolving credit commitment and is not obligated to extend revolving loans and swingline loans beyond that commitment. In other words, the swingline facility is part, not part of the bank’s overall commitment to act as the swingline lender. If the revolving credit facility is fully funded, the swingline facility cannot be used until a portion of the facility is repaid. Second, the maximum swingline loan amount is almost always specified as a sub-limit in the total revolving credit commitments. The sub-limit could be equal to the commitment of the bank (s) acting as swingline lender, but an amount set as a percentage of this commitment is very common since an outstanding loan would not allow the commitment of the swingline lender to be fully available for a swingline loan. Third, swingline loans are only intended as a short-term stopgap until a full syndicate revolving loan can be made. As such, swingline loans are normally required to be repaid no earlier than (i) two to five business days from the date of funding and (ii) the date of the next regular loan under the credit agreement. Finally, if for any reason the borrower does not repay the swingline loans on time (including due to an intermediate event of default or bankruptcy), other revolving credit lenders will be unconditionally liable. joint venture to buy stakes in the swingline loans so that the risk of the swingline loans is shared on a pro rata basis among all revolving credit lenders.

Another key point is that swingline loans almost always bear interest at the base rate, and in the United States almost always are limited to loans denominated in dollars. In addition, the swingline facility is not intended to allow same day borrowing and repayment to avoid generating interest. We almost always see the swingline facility written to require that a swingline loan requires payment of interest at the prime rate for at least one day.

A common syndication strategy is to establish a credit facility for the purpose of future syndication. In these cases, the documentation may include the mechanics of the swingline facility, but the functionality of these provisions does not apply until at least one lender other than the swingline lender joins the facility.

Finally, the prerequisites for granting a swingline loan are identical to those for a classic revolving loan. The Swingline facilities are not intended to be a means of avoiding the joinder requirements applicable to a new borrower, in particular the know your customer requirements. In other words, if the Swingline Lender has received all the necessary Know Your Client approvals but one or more other Syndicate members have not, the Swingline Facility is not intended to be a means of give the new borrower joining access to funds. short term until full KYC checks are completed for all union members. The swingline facility is only available to borrowers who are fully tied to the credit facility and who have fully met the loan documentation requirements as applied to all lenders in the syndicate.