Leveraged Buyouts. David Pilger

      This group of creditors is made up of lenders that issued debt to the company before there was any talk of a leveraged buyout. The existing creditors presumably lent money to the company to help them expand operations or meet liquidity needs or both. Most likely, existing creditors are traditional lenders, such as a commercial bank specializing in making traditional commercial loans. This group likely has a relationship with the company and has a reasonable understanding of the company’s credit situation.

      The existing lenders do not play a major role in the transaction. They receive the loan principal plus any interest due and pre-payment fees once the leveraged buyout transaction goes through. Generally speaking, institutions that are in the business of making loans like this receive a steady, predictable interest payment on time and leave more exciting affairs to their cousins in the capital markets business. In a situation such as the pre-payment of a bank loan there is typically a pre-payment fee between 1% and 1.5% that is agreed at the initial extending of the loan. The fee is paid to the lender at the time of pre-payment. Once a borrower decides to pre-pay on a loan, the existing lender then becomes focused on seeing that its extended loans and other monies due and receivable are paid back.

      “In the event that a lender is large enough, it may be motivated to seek participation as one of the lenders in the leveraged buyout transaction.”

      In the event that a lender is large enough, it may be motivated to seek participation as one of the lenders in the leveraged buyout transaction. This would present an opportunity for the lender to extended additional loans.