Why use an independent Facility Agent in leverage finance deals?

In APAC the evolution of the independent Facility Agent mirrors the growth of alternatives over the past 15 years. Three ‘mega-trends’ continue to impact our private credit markets.

Efficient pooling of private capital, technology advancement that supports new reporting capabilities and bank regulation have all buoyed alternatives’ growth.

Evolution of the Facility Agent

Pre-GFC, an independent FA mandate may involve appointment as Successor Facility Agent. Typically, the deal would involve a distressed credit and lenders would be in the process of a Work-out, Administration or Scheme of Arrangement.

The FA would add value by: (i) serving as deal advisor to assist ‘sorting out’ unusual and complex collateral and loan arrangements; and (ii) typically combine this advisory and FA roles with appointment as Security Trustee.

In APAC today the challenges of complex ‘work-outs’ and transactional costs remain, however the ‘mega-trends’ continue to impact our sector in interesting ways.

Syndicated deals?

In APAC syndicated deals remain significant sources of corporate finance for local borrowers. The independent FA can be useful when, for a variety of reasons, a fluctuating syndicate requires a central independent loan administrator.

The trigger point differs between transactions. The deal may involve an unusual security package. Some parties might not have appropriate reporting or payments technology. There might be a perceived conflict of interest etc.

Private credit deals

The APAC private credit sector is growing swiftly and between the Hong Kong, Singapore and Australia markets there has been substantial growth in private credit fund raising and the need to facilitate the underlying debt transactions.

Managers discover that there are significant differences between administering PE, real estate or infra strategies compared with private credit. Key differences include: deal mechanics, payment arrangements, timelines, overnight interest calculations, structures and reporting requirements etc.

Facility Agent as a tech platform?

As the ‘mega-trends’ accelerate, loan syndicates and private credit managers will require advanced asset servicing, monitoring and reporting solutions that combine traditional Fund Administrator and specialist FA and Security Trustee solutions.

For the independent FA the ‘mega-trends’ mean that it needs to constantly innovate its own solutions to ensure that it can continue to deliver a powerful combination of debt administration with ‘bank-like’ payment capabilities for an ever-evolving range of hybrid debt solutions.