When implementing the accordion facility, legal advice should be provided on whether credit assistance should be modified or withdrawn or whether a guarantee and/or security confirmation is sufficient. When signing the credit agreement, lenders should refuse to confirm that there is no need for additional credit assistance, particularly where the laws of several jurisdictions may be relevant, but in any event to allow the necessary leeway to reflect any necessary changes in the law or market practice. Debt agreements, such as the portable, box-shaped musical instruments that name them, can be pulled and stretched to lengthen the size as needed, creating flexibility for borrowers. For companies, especially a company with an innovative idea or product, the accordion function is advantageous in several respects. First, it allows the company to grant more favourable terms to lenders. This helps attract more lenders to businesses looking for loans that would otherwise be considered too risky. Lenders focus more on luck than risk, making additional credit increases more likely to exceed pro forma expectations. Second, the terms of the entire line of credit, including all incremental increases, are negotiated at the beginning. So when there is an increase in credit, all conditions are predetermined and the increase in credit can be accelerated. This is particularly important for the new business, which has exceeded its expectations, and rapid expansion may be warranted to take advantage of untapped markets before competitors seize the opportunity. It can be counterproductive to take the time to reorganize credit conditions.
The credit contract may also allow security officers to make any necessary changes to the transaction security documents necessary to ensure (i) that accordion facilities coincide with existing debt facilities; and (ii) that the transaction guarantee be shared by the financial parties on a pari passu basis. Lenders of accordion facilities will also be required to provide a precondition for the introduction of the accordion facility to accede to the inter-credicator agreement, so that they are subject to the provisions of this agreement (e.B, restrictions on enforcement measures and revenue enforcement). In addition, it is not uncommon, particularly in the case of mid-size transactions, to limit the capacity of accordion facilities to unpreciated long-term loans. When amortization credits are authorized, original lenders will generally strive to ensure that the amortization profile of accordion debt is no more aggressive than that of the original debt. How else could an accordion facility benefit a borrower? Debt agreements are simple and inexpensive. They do not require a new credit contract, which allows business borrowers to access funds fairly quickly when they need them. The current popularity of incremental institutions in the market indicates that they will remain an important feature. As in such a development, we will probably see additional complexity and an increase in the flexibility of borrowers, but only time will show. It is a matter of negotiation. Existing lenders that agree to authorize accordion capacity have two reasons: first, they want to ensure (as usual) that existing lenders are not required to participate in accordion debt; the unsyed nature of the facility is clearly important from the point of view of credit capital and regulatory capital.