refinancing cliff

USA

Market term used for the looming over-demand for bank loan refinancings by borrowers. It is called a cliff because many of the loans entered into during the busy years of 2005-2007 are due to mature around the same time (2012-2014).

After the financial crisis, banks no longer have the same liquidity and borrowers face uncertainty about whether there is sufficient liquidity in the loan market to enable them to refinance their maturing loans. To deal with the refinancing cliff and the anticipated lack of lenders willing to enter into new loan facilities, borrowers must consider new alternatives for repaying their loans, such as:

• amend & extends.

• loan buybacks.

• Using equity and debt security issuances to repay loans (see Legal Update, S&P Report Shows Increase in Amount of Bond Issuances To Pay Down Loans (www.practicallaw.com/9-386-2195)).

• Sale of the company by the sponsor to repay the bank debt.

• Borrowing from smaller lenders or mezzanine lenders (mezzanine debt) rather than traditional bank lenders.

See also

cash equivalents