One-time settlement funding
A settlement agreed with the incumbent lender is not a settlement funded, and the gap between the two is where most of them fail.
Part of Ascent Pinnacle’s structured credit practice.
A one-time settlement converts a stressed exposure into a fixed sum payable by a fixed date. Reaching that agreement is difficult and is usually treated as the achievement. It is not the hard part.
The hard part is that the borrower now has a deadline, and missing it typically reopens the entire original exposure. Capital has to be committed against security that is still charged to the lender being repaid — a release that, by definition, has not happened yet.
When this applies
- A settlement has been agreed or is close, and the funding to honour it is not in place.
- The settlement carries a date, and the consequence of missing it is the original exposure returning in full.
- The security supporting the new facility is the same security currently charged to the settling lender.
- More than one lender has to release, and they do not release simultaneously.
What makes it difficult
The incoming provider is being asked to commit against a release that has not occurred. Until the settlement completes, the assets are charged to someone else; after it completes, the money has already moved. The two events have to be made simultaneous in mechanism even though they are sequential in fact.
This is documentation work, and it is the stage at which facilities of this shape usually fail. A borrower with an agreed settlement and no executable release mechanic has a deadline and no transaction.
Where several lenders must release, the problem compounds: the sequence has to be agreed between parties whose interests in the timing genuinely differ.
How it is structured
Confirm the settlement is documented
Establish precisely what the settling lender has agreed to release, on receipt of what, and within what period — in writing, before anything is arranged against it.
Design the release mechanics first
Build the simultaneity: payment into a designated account against a deed of release, escrowed so neither side is exposed to the other's performance. This is settled before the term sheet, not after.
Structure the incoming security
Establish what the new provider takes, when the charge attaches, and how the gap between payment and perfection is bridged.
Sequence a multi-lender release
Where several lenders must release, agree the order and the conditionality between them before funding is committed.
Work backwards from the date
The settlement date is fixed and everything else is not. The timetable is built from it in reverse, with the documentation critical path identified at the start.
What a capital provider tests
- Whether the settlement itself is documented and binding, and on what conditions
- What the assets are worth once released, and what ranks against them afterwards
- Whether the release mechanism is executable as drafted, not merely agreed in principle
- The borrower's position if the date is missed, which is the real downside case
- How the facility is refinanced or amortised once the settlement has completed
Discuss a situation
Bring the position, the existing debt schedule and the timeline. We come back with a view on whether it is structurable and what it would take.
Discuss a mandate