Uncovering the Mystery: How to Analyze Super Senior RCF Status in High Yield Bond Deals

If you've ever found yourself staring at a high yield bond prospectus wondering whether that revolving credit facility (RCF) sitting in the structure chart can actually jump the queue and become super senior, you're not alone. This blog will walk you through a real-world example that perfectly illustrates why sometimes the devil really is in the details – and why you should never be afraid to ask the questions of management.

The Case Study: Maxam's €1.215 Billion Senior Secured Notes

Let me take you through my analysis of a European high yield deal – Maxim's €1.215 billion senior secured notes due 2030, issued in both euro and dollar tranches. This deal presents a fascinating puzzle that every credit professional should know how to solve.

Step One: Start with the Structure Chart

The structure chart is your roadmap to understanding the capital structure hierarchy. In this Maxim deal, I could see:

• A €175 million revolving credit facility
• The notes being offered
• Some existing group debt

Here's where it gets interesting – note 4 contained some crucial language that immediately caught my attention.

The Red Flag: Conditional Super Senior Status

The structure chart revealed this telling statement: "The revolving credit facility and certain hedging obligations may become super senior liabilities upon satisfaction of certain conditions."

Notice the word "may" here. This isn't saying the RCF is super senior on day one – it's saying it could become super senior if certain conditions are met. This is a critical distinction that could significantly impact recovery prospects as a bondholder.

A Closer Look: The Risk Factor Analysis

When you encounter language like this, your next stop should always be the Risk Factors section. Why? Because Risk Factors are written in plain English – no legalese to decode!

In the Risk Factors, I found this relevant passage: "[U]pon the satisfaction of the conditions contained in the definition of "Permitted Collateral Liens" liabilities may be incurred in respect of certain indebtedness and certain hedging obligations on a super senior priority basis." It goes on to say, "Whilst the terms governing Super Senior Liabilities are not currently reflected in the secured debt documents, these arrangements could present several disadvantages to the holders of the Notes.

‍Translation: This isn't how things work today, but it might work like this tomorrow. And if it does, bondholders could find themselves subordinated to debt they thought they ranked equally with.

The Hunt for Conditions: A Covenant Detective Story

The Risk Factor pointed me to the "Permitted Collateral Liens" definition, so that's where I headed next. Using a simple Ctrl+F search for "liens means," I navigated to this critical section.

 What I found answered the question – almost. The definition showed that:

• Clause 2(c) referenced indebtedness under Clause (1) of the Permitted Debt baskets (which, by convention, is always the credit facilities basket in high yield deals)
• There was language about non-guarantor capacity capped at 50% of Consolidated EBITDA – this is important, and in an unusual place, but not relevant for this particular analysis
• Most importantly, it stated: "Indebtedness secured pursuant to foregoing clauses (c) and (g) may have super senior priority status pursuant to the Intercreditor Agreement"

But here's the mystery: I couldn't find the actual conditions anywhere.

The Missing Piece of the Puzzle

Both the structure chart disclosure and the Risk Factors clearly referenced "certain conditions" that needed to be satisfied for super senior status to be conferred on the RCF. Yet despite thorough searching – including multiple searches for "super senior priority"throughout the document – these conditions remained elusive.

What This Means for Credit Professionals

This situation illustrates a crucial lesson: not every prospectus tells the complete story on first reading. In my experience, when deals include this type of conditional super senior language, the typical conditions are:

1. Refinancing trigger: The RCF (or the entire TLB structure) gets refinanced at some future date
2. Designation requirement: The borrower and RCF lenders formally designate the facility as super senior
3. Intercreditor amendment: The Intercreditor Agreement is modified to reflect the new super senior status

But without seeing these conditions explicitly spelled out in the Maxam deal documents, I'd strongly encourage any lender or investor to ask the question: "What exactly are those conditions?"

The Takeaway: Never Be Afraid to Ask

This analysis demonstrates why thorough document review is essential, but also why it's equally important to recognize when you need more information. Sometimes the most professional thing you can do is acknowledge that the documentation may not be complete and ask for clarification.

In leveraged finance markets, where complexity is the norm rather than the exception, being able to identify these gaps and ask intelligent follow-up questions is what separates seasoned credit professionals from the rest.

Moving Forward

The next time you encounter conditional super senior language in a deal, remember this framework:

1. Start with the structure chart
2. Check the Risk Factors for plain English explanations
3. Follow the breadcrumbs to the relevant definitions
4. If conditions aren't clearly spelled out, don't hesitate to ask

Your future self – and your investors – will thank you for your diligence.

This analysis is based on real market documentation and reflects the kind of practical, hands-on training that credit professionals need to navigate today's complex debt markets. Understanding these nuances isn't just academic – it's essential for protecting your interests in an increasingly sophisticated market.

For more information on FLT’s online, on-demand covenant education resources, which guide lenders through analyses like these, contact us at info@foxlegaltraining.com.

Photo by Lars Portjanow on Unsplash