Super senior revolving facility
LBOA working capital line secured on the same collateral as senior secured notes but paid ahead of them out of enforcement proceeds.
Also written: super senior RCF, super senior facility
In a bond financed structure the company still needs a revolving line for working capital swings, and bond investors are not the right holders for a facility that is drawn and repaid continuously. So a small revolving facility is provided separately by banks, secured on exactly the same assets as the notes.
It is called super senior because the intercreditor agreement directs that enforcement proceeds are applied to it first, in full, before the notes receive anything. Nothing in the security documents distinguishes the two claims. The ranking is purely contractual.
Banks require it because a revolver is a commitment to lend on demand, frequently at the worst possible moment, and they are not compensated for that exposure at bond risk. Bond investors accept it because the facility is small relative to the notes and because a company without a working capital line is a worse credit than one with a small claim ranking ahead.
For an analyst the practical consequence is a recovery difference between two instruments that look identical on the security schedule, and it is a good illustration of why reading the intercreditor matters more than reading the debenture.
Worked example
Illustrative enforcement proceeds of 300, against a super senior revolver drawn at 40 and 300 of senior secured notes, ignoring enforcement costs.
The revolver is paid its 40 in full. The notes take the remaining 260 against a 300 claim, a recovery of about 87%.
Both claims were secured on the same assets. The only reason one recovered fully and the other did not is a clause in the intercreditor agreement.