Amend & Extend: “Snooze you’ve been extended” the new game in town

Snooze you lose provisions were originally meant to mitigate slow responses from lender back offices, now the provision is being used to game the system

What is Snooze you lose?

A snooze you lose provision is inserted to amendment process so that lenders who don’t respond by the cut off date have their vote discounted. This was done to stop sleepy lenders holding up key amendment processes.

If a SYL provision is in place the denominator shrinks allowing voting thresholds to be more easily acheived for borrowers/sponsors. For example – if a facility has 4 lenders and only 1 responds, the vote threshold of 75% is passed because 100% of responding lenders voted yes.

What’s Snooze you’re extended & who does it matter to?

A snooze you’re extended vote is used when a borrower wants to extend the maturity of a loan, typically because repayment of the capital is not possible. Neither borrower or lender wants to deal with a default so typically it suits the lender base.

CLOs are funded by investors who expect returns and principal protection from these kinds of events. So an extension doesn’t suit AAA CLO liability investors. Any repayment of loan principal typically goes to repay these investors so a maturity extension moves capital away from them, reduces IRR and increases default risk.

The future is tighter documentation

The upshot of this is that while “it “Snooze you’re extended” is possible under current CLO documentation, CLO AAA investors will be scorecarding managers who allow this to happen and any future cornerstone investments may be moved to managers to in cricketing terms embrace the “spirit of the game!”

What issue do Borrowers/Sponsors face when launching an amend & extend or cashless roll?

As a Borrower when I launch a corporate action I can’t tell which lenders are able to roll their loans into the new facility. This information has to be manually aggregated and can’t be seen in an effective and consolidated interface.

Cashless rolls made easy……

What issue do Borrowers/Sponsors face when launching an amend & extend or cashless roll?

As a Borrower when I launch a corporate action I can’t tell which lenders are able to roll their loans into the new facility. This information has to be manually aggregated and can’t be seen in an effective and consolidated interface.

Some lenders are structurally unable to extend their loan, knowing lender reinvestment period is key to . Before launching a deal I want to be able to see much new money I will need to raise based on this data. This is key to lenders who aren’t investors but are thinking of spending precious analyst time on the credit/opportunity. No point in spending 3 week researching a credit, taking it to IC and then finding out there is $8mn of new money available! Capital markets team , Nil points!

This is where we come in – with LedgerComm you can quickly analyse your lender base to see

1.  Which funds are in their reinvestment period – simple %

2. Analyse funds based on RP & final legal maturity

3. Structure loan to optimise maturity length based on lender reinvestment capability

4. Quickly identify investors to fit new money need/availability

For a more connected, digital way to manage your loan operations, connect with us. 

Will Nash

Will Nash is the Founder of LedgerComm.