Recent refinancings of syndicated creditfacilities, as well as repricings and amend-and-extend amendments, have often been accomplished utilizing, in part, a "cashless roll" mechanism. Although not a new feature of syndicated credit facilities, it is being used with increasing frequency and transparency, and the technology for applying "cashless rolls" is evolvingas borrowers, lenders and arrangers recognize the com-plexities involved. This client alert provides an overview of the "cashless roll" mech-anism, including explanations of when, why and how it has beenemployed in recent U.S. syndicated creditfacilities.
WHAT IS A CASHLESS ROLL?
A "cashless rollover" or "cashless roll" is a deemed exchange of existing term loans for new or amended term loans from the same lender to the same borrower. As the name suggests, the exchange is accomplished on an in-kind, or cashless, basis. In effect, a lender "rolls over" its principal amount from one credit facility to a replace-ment, or amended, facility by applying the new principal amount in satisfaction of an equal amount of existing principal, rather than receiving a cash payment in respect of its existing term loan and shortly (or immediately) thereafter using the same cash to purchase the borrower's new term loans. Thus, the cashless exchange of principal eliminates the need to "round trip" cash from the borrower to lender and back to the borrower again.
WHEN IS IT USED?
The "cashless roll" is deployed in situations where existing term loans would other-wise be repaid to existing lenders in cash at par with proceeds of new or amended term loans (e.g., a refinancing, or a repricing or amend-and-extend amendment that is structured as a new tranche of lower-priced and/or extended term loans that repay the existing term loans).
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