
First-Out Revolver Clauses
(Credit Agreement)
Summary
These first-out revolver clauses are used to implement a first-out revolver feature in a credit agreement in a secured syndicated loan transaction. Waterfall, prepayment restriction, turnover, subordination, and term loan lenders’ acknowledgment clauses are provided. These clauses include practical guidance and drafting notes. First-out revolving credit facilities are a niche product within the secured lending market. In a first-out revolver, although all lenders remain equally and ratably secured by one collateral pool, the parties have agreed that the revolving lenders will be paid-out before the other secured lenders in a foreclosure scenario. This structure is used in transactions when the arrangers would otherwise have difficulty attracting financial institutions to participate in the revolving facility. Adding the first-out feature grants the revolving credit facility with a super-priority status that reduces the repayment risk to the revolving lenders. A first-out revolving credit facility is sometimes structured so that the revolving lenders are paid out first solely from the proceeds of the collateral or, alternatively, the revolving lenders may be paid out from other sources of funds available to repay the lenders. Note that these clauses contemplate a financing that includes the following elements: • A senior secured credit facility consisting of one or more term loan facilities and a revolving loan facility. • A first-out revolving loan facility, with payment priority, class voting and an acknowledgement of priority by the term loan lenders. • Agency roles for each of an administrative agent, collateral agent, issuing bank and swing line lender, acting for a syndicate of lenders. Conform the capitalized terms to the defined terms in the relevant credit agreement. Read in conjunction with the practice note First-Out Revolving Credit Facilities.