Submitted by Chris Nichols on March 07, 2018. of maturity of the existing revolving facility. Rather than structure the loan as two closings, the accordion loan allows the community bank to provide the entire financing in one closing. For underserved areas, the definition of “service facility” is more limited and allows fewer kinds of facilities to qualify as a service facility as contemplated by the Chartering Manual. Signup today for free to get the latest banking performance strategies, tactics and insight delivered right to your inbox. We refer to the Facility Agreement and in particular Clause 2.5 ( Accordion Facility) thereof. Because the yield curve is relatively flat after five years, but steeper in the first few years, the initial advance on the fixed rate tranche serves to lower the coupon that the bank can offer for the loan. Yes! Any Accordion Facility Increase may be denominated in Dollars, any Designated Foreign Currency and, to the extent that every Lender and Additional Lender providing such Accordion Facility Increase is able to make Loans in another agreed currency, such other currency. The accordion loan can even generate non-interest income for the bank by monetizing an interest rate spread (and still without out-of-pocket costs for the borrower). These benefits are as follows: We see many opportunities for community banks to gain very profitable construction through perm loan business. Increase in Revolving Credit Commitments. A revolving credit facility is an important part of financial modeling What is Financial Modeling Financial modeling is performed in Excel to forecast a company's financial performance. The red line shows the known loan balance outstanding for the 11 year period (the initial $500k draw for one year, followed by ten-year amortizing term loan). credit facilities. The ability to lock in a fixed rate term loan after construction in a single closing can gain banks additional clients, valuable non-interest income, higher credit quality borrowers, reduce competition for the term loan and generate higher ROE. The Impact To ROE Of Various Bank Budget Initiatives, 10 Important Pieces of Data Banks Need To Collect On Commercial Customers, Now Is The Time To Segment Deposits By Elasticity, 5 Popular Economic Indicators Banks Use That Are Unreliable, 4 Indicators that Help Banks Forecast The Future, 5 Skills We Learned In a Recent Remote Selling and Coaching Training, Commercial Lender Compensation for Fee Income. The 2013 Credit Facility matures on April 29, 2016, increases the letter of credit sublimit to $750 million and provides an accordion feature that could potentially increase the size of the facility by an additional amount not to exceed $400 million. A credit facility opens up a line of financing between the customer and the lender. Another word for facility. At CenterState Bank, we use accordion construction through perm loans to decrease credit risk, increase profitability and keep competitors at bay. There are a number of tangible benefits to both the borrower and the bank in offering the accordion loan. “This commentary on this blog reflects the personal opinions, viewpoints, and analysis of the author and not CenterState Bank. Each includes an integral guarantee but they are all unsecured. A loan extended by a bank to a business in need of operating capital.This may take several forms, from a short-term loan to a line of credit.Different banks have different facility plans for … because it underscores changes in a company’s debt based on operating assumptions. o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) As a result, loans under this facility seem to be directed toward borrowers that have accordion provisions in existing credit agreements. This makes the loan rate more competitive for the community bank. revolving credit facility an arrangement (usually with a bank) that requires the borrower to undertake to make regular periodic payments into a designated account in return for the facility to borrow on that account up to a specified sum, the amount of which is usually expressed as a multiple of each contractual payment into the account. With this type of financing, the bank agrees to make a pool of cash available, say $50,000, which you can use whenever you want. Default Rate: In the case of unpaid principal, the applicable interest rate plus 2% per annum and, in the case of any other amount, the rate of interest applicable to ABR loans plus 2% per annum. Pursuant to the exercise by the Borrowers of the Accordion Option referenced in Section 2.5 and 2.5.1 of the Loan Agreement, and subject to the phasing set forth in Section 2.1 of this Accordion Exercise, the Revolving Credit Limit set forth in Section 1.1 of the Loan Agreement is hereby increased from $250,000,000 to $375,000,000. All contents of the lawinsider.com excluding publicly sourced documents are Copyright © 2013-, Incremental Revolving Facility Commitment. Companies typically purchase an accordion feature in anticipation of the need for more capital for possible expansion opportunities. The official Securities law definition is found in SEC Rule 144 and Rule 405. There are majorly two types of credit facilities; short term and long term, where the former is used for working capital requirements of the organization including paying off creditors and bills, while the latter is used for to meet the capital expenditure requirements of the enterprise, generally financed through banks, private placements, and banks. I would like to receive Nasdaq communications related to Products, Industry News and Events. Also known as an accordion feature. the principal amount under the agreement) or other liabilities with a lending financial institution. Each Accordion Facility Increase shall be in a minimum aggregate amount of at least $15,000,000 and in integral multiples $5,000,000 in excess thereof. Managing CRE Risk - What Will Happen to Office Space? existing credit facility to which the increase relates. No money transfers when you close the credit facility. Navigating Uncertainty: Accordion is committed to helping private equity sponsors and portfolio company CFOs assess and address financial risk. ... the investment bank that “arranges” a Credit Facility by negotiating original terms with the Borrower and Syndicating the facility to a larger group of Lenders. We have written about construction through permanent (perm) financing before (HERE) but the accordion feature is another novel structuring strategy to help community banks compete against the national banks to attract and retain some high-quality borrowers. More specifically, for underserved areas, a service facility includes credit union-owned electronic facilities … adj. Banks should consult their professionals and fully explore any opportunity and risk referenced herein.”. A business typically has a credit facility in place with its bank in order to fund its working capital needs on an ongoing basis. * Chesswood exercises accordion feature under credit facility. The First Lien Note Purchase Agreement includes an Accordion Facility of $10 million, and the Company may offer notes for purchase to the Floating Rate Secured Noteholders under the same terms including interest rate and maturity date as the Floating Rate Secured Notes, subject to certain limitations and in increments of no less than $1 million. Find more ways to say facility, along with related words, antonyms and example phrases at Thesaurus.com, the world's most trusted free thesaurus. Find out what thousands of banks, regulators and industry experts are doing to drive performance. credit facility definition: an arrangement between a bank and a business that allows the business to borrow a particular amount…. The best feature of the accordion loan is that the borrower does not see the difference between the blue and red line, instead, from the borrower perspective the entire facility is one loan with the same pricing. In respect of leveraged loans, incremental facilities have become embedded to such a degree that of all the European deals tracked by DebtXplained in 2015, only 1 per cent did not contain an incremental facility. As the first step in this review, the agencies have published an advance notice of proposed rulemaking (ANPR) that seeks public comment on a wide range of questions. Uncommitted Facility: An uncommitted facility is an agreement between a lender and a borrower where the lender agrees to make short-term funding available to the borrower; this is … As we all know, accordions are box-shaped musical instruments that bellow sounds without reeds. Agency Fee This is an annual fee, calculated as a lump sum or per bank per annum, payable by the A credit facility is a type of loan made in a business or corporate finance context, such as revolving credit, term loans, and committed facilities. adj. Let us consider a sample $1mm construction through perm loan, where the borrower requires an immediate $500k draw for land acquisition and soft costs (although the initial draw can be any dollar amount). If an existing credit agreement does not include accordion provisions, consent of the borrowers’ existing lenders will be required in order for a borrower to participate. This backstop facility supports the commercial paper's credit rating and fosters investor confidence since it provides a secondary source of repayment for the commercial paper. Typically, national banks prefer to extend long-term facilities on high-quality, stabilized cash flow at lower margins. In this article, we explain the accordion feature, how to use it and how it can help your bank increase risk-adjusted profitability. 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