Negotiating these provisions requires careful consideration of the realities of the underlying credit facility and
a good understanding of how an AAL differs from an
Collateral and Payment Priority
In a unitranche facility, an agent holds a single lien on
the collateral on behalf of all the lenders. No lender has
a “senior” or “junior” lien on the collateral or the ability
to take actions individually on the collateral. Instead,
they have differing rights to receive proceeds of collateral and payments and differing rights to direct the
agent to exercise remedies. The most common structure
for a unitranche facility is a “first-out” revolver and a
“last-out” term loan.
The first-out obligations have priority over the last-out obligations with respect to all collateral payments
and proceeds. A “split collateral” unitranche is an alternative structure in which the revolver obligations have
priority only with respect to proceeds of the revolver
collateral (typically the assets included in the borrowing
base and related assets, such as cash) and the term loan
has priority with respect to all other collateral proceeds.
Sometimes a split collateral AAL will exclude from the
term loan collateral certain “shared collateral” (such
as equity interests) with all lenders sharing pro rata in
proceeds of such collateral.
In split collateral AALs, the revolver lender needs to
ensure that the AAL details how proceeds of revolver
and term loan collateral disposed of in the same trans-
action will be shared, as well as how and when the
non-revolver collateral can be disposed of, so that the
revolver collateral can be liquidated with the applicable
An AAL takes the place of the intercreditor agree-
ment used in a traditional senior/junior or first lien/
second lien debt structure. However, unlike inter-
creditor agreements, which have developed within the
framework of adjusting legal rights of creditors under
the Uniform Commercial Code and the U.S. Bankruptcy
Code, an AAL is a contract between lenders holding
a single secured claim. The AAL, among other things,
establishes payment priority between the lenders (i.e.
what the “first-out” obligations versus “last-out” obli-
gations are), allocation of fees and interest and how
actions under the credit documents will be taken.
Understanding Agreements Among Lenders:
How the Unitranche Differs From an
BY DANIELLE GARCIA AND ALYSSA KEON
Unitranche facilities are growing in popularity. They require less paperwork, so borrowers find them
more economical and quicker to close. The unitranche is an agreement among lenders without the
framework of the UCC or the Bankruptcy Code. Blank Rome’s Danielle Garcia and Alyssa Keon explain
how unitranche facilities differ from intercreditor agreements and point out ways to create a more
effective agreement among lenders.
An AAL is a contract between lenders holding a single secured claim.
The AAL, among other things, establishes payment priority between the
lenders (i.e. what the “first-out” obligations versus “last-out” obligations
are), allocation of fees and interest and how actions under the credit
documents will be taken.
Partner, Blank Rome
Associate, Blank Rome