In the past few months, we have seen several requests to include a swingline facility in the capital call loan documentation for syndicated facilities. Swingline loans are typically provided as part of a revolving credit facility from one of the lenders known as “swingline lenders”. Swingline loans are intended to give the borrower faster access to funds than would otherwise be possible through the notice periods prescribed in the loan agreement, which generally require at least three working days’ notice for euro currency loans and one working day’s notice period for base rate loans. Swingline facilities not only provide the borrower with same day financing, they also provide greater flexibility by allowing the borrower to apply for swingline loans at a later date on the day of the financing. Swingline loans can be funded with shorter deadline as they are only advanced by a lender, which is often the lender who acts as the administrative agent.
Because a swingline facility is often funded by a single lender, there is often more flexibility in the amount of borrowing requested. A swing line facility often gives the borrower access to loans with lower minimum amounts than would otherwise be required for syndicated borrowing from all lenders participating in the line of credit.
Swingline systems have several main characteristics. First, the Swingline Lender is typically required to provide Swingline Loans only under its Revolving Loan Approval and is not required to provide Revolving Loan Loans and Swingline Loans beyond that commitment. In other words, the Swingline Facility is part of the overall exposure of the bank acting as the Swingline Lender, and not in addition to it. If the Revolving Credit Facility is fully funded, the Swingline Facility cannot be drawn until any portion of the Facility is repaid. Second, the maximum swingline loan amount is almost always given as the lower limit within the total revolving loan commitments. The sublimit could match the commitment of the bank or banks acting as swingline lenders, but an amount set as a percentage of such commitment is very common as an outstanding borrowing would not allow the commitment of the swingline -Lender completely for a swingline loan. Third, swingline loans are only intended as a short-term bridge until revolving borrowing from the entire syndicate can take place. Therefore, Swingline Loans typically need to be repaid (i) two to five working days from the date of funding and (ii) the date of the next regular borrowing under the loan agreement. If for any reason the borrower does not repay the Swingline loan within the prescribed term (including due to default or bankruptcy), the other revolving lenders are unconditionally obliged to hold stakes in the Swingline loan on multiple bases, thus reducing the risk of the Swingline – Loan is split proportionally among all revolving lenders.
Another important consideration is that swingline loans almost always have the base rate and are almost always limited to dollar loans in the US. In addition, the Swingline Facility is designed not to allow borrowing and repayment on the same day to avoid interest. We almost always see that the Swingline Facility is designed in such a way that a Swingline borrowing requires the payment of interest at the base rate for at least one day.
A common syndication strategy is to set up a credit facility for future syndication. In such cases, the documentation may include the mechanics of the Swingline Facility, but the functionality of these provisions will not apply until at least one lender other than the Swingline Lender joins the Facility.
Finally, the terms and conditions for a swingline loan mirror those of standard revolving borrowing. Swingline facilities are not intended to circumvent the joiner requirements, especially know-your-customer requirements, that apply to a new borrower. In other words, if the Swingline Lender has received all of the required Know-Your-Customer approvals but one or more other members of the Consortium have not, the Swingline Facility is not intended to provide access to funds for the new, acceding borrower at short notice, until the complete know-your-customer checks for all members of the syndicate have been completed. The Swingline Facility is only available to those borrowers who are fully involved in the credit line and who have fully met the credit documentation requirements applicable to all lenders in the consortium.