It is mandatory that the termination date of the accordion debt not be set on the termination date for the original maturity debt. Sometimes an extra buffer (for example. B three or six months) is included in order to offer the original lenders additional comfort to be repaid to accordion lenders. A debt agreement, also known as an incremental facility, is a provision that allows a borrower to extend the maximum amount allowed on a line of credit (LOC) or to add a fixed-term loan to an existing credit contract. The credit contract may also allow security officers to make any necessary changes to the transaction security documents necessary to ensure (i) that accordion facilities coincide with existing debt facilities; and (ii) that the transaction guarantee be shared by the financial parties on a pari passu basis. Lenders of accordion facilities will also be required to provide a precondition for the introduction of the accordion facility to accede to the inter-credicator agreement, so that they are subject to the provisions of this agreement (e.B, restrictions on enforcement measures and revenue enforcement). Another important feature of the accordion that benefits the business is the optional credit increase. Thus, if the company can grow without making additional debts, it can make that decision. As a general rule, these establishments have a cap that limits the total amount that can be borrowed and the maximum number of time used. However, some lenders will offer more flexible rules and may even offer unlimited debt agreements based on the borrower`s profile. The characteristics of the accordion have become more and more common in the debt credit market. In this question-and-answer session, we summarize what they are, look at their increased use and highlight some of the issues that lenders and borrowers should consider.
One of the essential features of many modern credit contracts is the so-called «incremental» or «accordion» regime, which allows a borrower to increase the total amount of financing available under a credit facility, provided that he can find a willing lender and is subject to certain conditions. The frequent use of these incremental facilities is to finance an acquisition. Debt agreements are simple and inexpensive. They do not require a new credit contract, which allows business borrowers to access funds fairly quickly when they need them. Suppose ABC set up a $100,000 line of credit to the Bank of XYZ. ABC has also acquired an «accordion function» that allows it to increase its total debt from $100,000 to $150,000, as ABC believes it will need an additional $50,000 if it decides to add a new sales division. The origin of this term derives from the way an accordion can be pulled and stretched in such a way that it extends its total size. As a general rule, all-in-yield debt on accordion debt incurred within a specified period of time after the initial financing must not exceed a certain value above the all-in-yield for the initial debts concerned.