Bank-Private Credit Co-Lending in US Growth Financings: Five Documentation Priorities

A growing share of US growth-stage financings (for example, for pre-profit technology, life sciences, healthcare, and fintech companies) pairs a bank revolver or asset-based facility with a private credit term facility, often including a bank term-loan commitment that ranks pari passu with the private credit lender’s position. Banks contribute revolving credit, letters of credit, deposit relationships, and treasury-management services, often positioning them as the borrower’s primary day-to-day banking partner. Private credit lenders, meanwhile, provide term financing that can accommodate higher leverage. Together, they can give emerging companies an attractive financing package.

The more difficult question is how those facilities operate together when a lender wants to amend the deal, restrict access to cash, enforce its security, or decline a future advance. Seniority is not a complete governance system. Five issues deserve attention at the term-sheet stage: documentary structure, voting rights, cash control, enforcement authority, and the conditions to future funding.

Documentary Architecture: Single Agreement or Separate Facilities

A threshold structural decision is whether the bank and private credit exposures will live in a single credit agreement supplemented by an agreement among lenders (AAL) or in separate revolver and term-loan agreements linked by an intercreditor agreement (ICA). The single-agreement/AAL model simplifies the borrower’s experience: one set of representations, one agent, and a unified covenant package, with any agreed first-out/last-out priority handled contractually. The separate-facility/ICA model lets each lender negotiate its own borrowing conditions and default triggers; the ICA coordinates collateral sharing, enforcement, and payment priority.

Neither architecture is inherently superior. The single-agreement model suits club transactions where lender product requirements are broadly compatible; the separate-facility model better accommodates situations where the bank’s structural protections and revolver mechanics diverge materially from the term lender’s covenant package.

Cross-default or cross-acceleration: In the separate-facility model, the most consequential linkage is how defaults are linked. A full cross-default means that an event of default under one facility becomes an event of default under the other, potentially triggering enforcement, cash-dominion, and setoff consequences across both facilities. Cross-acceleration, or a cross-default limited to payment and insolvency events, narrows the events that propagate such consequences. Whichever is chosen should be carefully drafted and reflect the standstill and cash-dominion triggers discussed below; an unintended cross-default may produce an unplanned control shift.

Responsibility matrix: Whichever structure is chosen, the parties should create a responsibility matrix at the term-sheet stage. All documents should use aligned definitions of Required Lenders, Event of Default, and Material Adverse Effect, so that a trigger in one instrument does not produce an unintended result.

Class Voting, Sacred Rights, and Consent Thresholds

A sensible governance framework uses aggregate voting for ordinary commercial matters and class voting (typically requiring a majority of each tranche) for matters that alter either class’s negotiated bargain.

A bank’s revolver carries undrawn commitment risk, letter-of-credit exposure, and account-bank responsibilities. Those characteristics justify distinct class-veto protections, but not treatment as funded debt for every governance vote. The parties should decide separately whether voting percentages are measured by commitments, funded exposure, or a combination, and how cash-collateralized exposures, terminated commitments, and accelerated loans affect the calculation. Additionally, where a bank holds both revolving and term exposures, the documents should specify how those holdings participate in the relevant voting classes, and identify any institution-specific consent rights.

Sacred rights should be reflective of the negotiated class structure, not imported from a syndicated loan form. Recent liability-management cases mean attention should be paid to pro-rata sharing, subordination of liens or payment priority, and non-pro-rata exchanges.

Cash Control: DACAs, Cash Dominion, and the Post-Trigger Waterfall

Cash is where the co-lending model becomes operationally sensitive. The bank may simultaneously serve as the revolver lender, account bank, and cash-management provider, while the private credit lender holds no direct relationship with the operating accounts. That concentration creates a structural conflict: the account bank’s right of setoff against deposits competes with the collateral agent’s lien for both classes, and under UCC Section 9-340, a depositary bank’s setoff rights generally prevail over a security interest in the account unless waived. The DACA and the AAL or ICA should together subordinate or waive setoff other than for ordinary fees and returned items, state when and in what circumstances, if any, revolver obligations may be set off before the waterfall applies, and make clear that deposit and cash-management obligations are first-out only to the extent of the negotiated cap.

Four mechanisms govern cash:

1. Deposit account control agreements (DACAs) give the collateral agent control for perfection purposes under UCC Article 9 (Section 9-104);
2. Blocked-account arrangements restrict withdrawals;
3. Cash-dominion provisions determine when borrower access can be restricted or cash may be swept; and
4. The AAL or ICA waterfall allocates swept cash among lender groups.

These mechanisms should be coordinated but need not share identical triggers. The documents should state whether first-out priority applies only to enforcement proceeds or also to voluntary repayments, ordinary-course prepayments, and operating cash. If cash dominion activates on any event of default but the waterfall turns on only for insolvency or payment default, the agent may trap operating cash without a clear allocation mechanism. The reverse mismatch is equally problematic.

First-out caps: One key negotiation item is the definition of First-Out Obligations. A well-drafted cap should separately quantify:

• committed revolver principal;
• unreimbursed drawings and letter-of-credit exposure;
• specified cash-management and hedging products;
• protective advances;
• agent fees and enforcement expenses;
• debtor-in-possession financings; and
• post-petition interest, whether or not allowed or allowable in an insolvency proceeding.

Revolver increases and additional ancillary exposures should receive first-out treatment only within expressly agreed limits, or with the required last-out consent. The documents should specify how any excess ranks.

Fees, premiums, and equity: Growth loans often carry final payment or exit fees, prepayment premiums, and warrants or success fees. The waterfall should say where each sits: whether a final payment fee counts as an obligation for sharing purposes, whether a prepayment premium is payable from enforcement proceeds ahead of last-out principal, and whether any of them is first-out. Warrants ordinarily sit outside the loan waterfall altogether, which should be expressly stated. The treatment should be coordinated with the buy-out provisions.

Protective advances. Both lender classes benefit when the agent can pay taxes, maintain insurance, or fund emergency custody costs to preserve collateral value. But an uncapped protective-advance authority can effectively become a super-senior working-capital facility. The documents should specify purpose limits, an aggregate cap, an emergency exception, notice requirements, and whether excess advances lose super-priority absent class consent.

Enforcement Control: Most-Aggressive-Lender Provisions, Standstills, and Bankruptcy

In growth financings, enforcement deadlocks are often resolved by giving control to the lender seeking the more aggressive enforcement action. The logic is specific to these credits: the primary collateral is often intellectual property and enterprise value that erodes quickly once a company is in distress; the bank’s exposure may be smaller relative to the term loan; and neither lender wants to be held in a standstill while the runway burns. That provision can favor prompt enforcement even where a negotiated workout might preserve greater enterprise value, and the consequences may differ for first-out and last-out lenders. If this approach is taken, the documents should define which remedies are covered, how competing instructions are resolved, and what notice or consultation is required.

Other structures may give enforcement control to a specified lender majority or to one lender class (sometimes after a period of mutual standstill), with the other subject to a standstill. Payment priority, enforcement authority, and operational access to accounts are separate issues and should be documented separately. The documents should clarify how those rights interact. Any standstill should specify:

• when it begins and how long it runs;
• whether active enforcement by the controlling class extends it;
• what happens if enforcement stops, the relevant default is waived, or the strategy materially changes; and
• how account instructions and setoff rights are coordinated with it.

A negotiated buy-out or control-shift mechanism can also provide a way to resolve a prolonged lender disagreement.

Bankruptcy: Bankruptcy provisions should address debtor-in-possession (DIP) financing, cash collateral, adequate protection, credit bidding, and plan voting, subject to applicable bankruptcy law and court approval. Section 510(a) of the Bankruptcy Code makes a subordination agreement enforceable in bankruptcy to the same extent it is enforceable under applicable non-bankruptcy law, but it does not resolve the enforceability of every inter-lender governance restriction. Plan-voting assignments in particular have divided the courts, and an AAL to which the borrower is not a party raises the further question whether the bankruptcy court will entertain disputes under it, which is one reason to have the borrower acknowledge the AAL.

Buy-out rights: Any buy-out right should specify:

• timing and the triggers that open the window (and the duration of the window, if an end date is desired);
• the obligations that must be purchased and the price—par plus accrued and unpaid interest and fees, and whether prepayment premiums, final payment fees, and other amounts are included;
• treatment of undrawn commitments and ancillary exposure, and the replacement or cash collateralization of outstanding letters of credit;
• agent succession; and
• what happens to the selling lender’s warrants or other equity, which sit outside the loan and ordinarily survive.

Delayed Draws and Milestone-Based Funding: Committed or Discretionary Capital

Growth credit is most distinctive when future capital is tied to milestones. Yet a milestone delayed-draw term loan can be a committed tranche available automatically when objective conditions and ordinary conditions precedent are met, or a discretionary tranche subject to further credit approval or sole discretion not to lend.

Market practices illustrate this spectrum. Some life sciences credit agreements tie delayed-draw availability to clinical milestones but reserve agent discretion over evidence review in the broadest terms. Others require “reasonable discretion,” narrowing the standard without eliminating it. Still others commit lenders to specified milestone tranches while separately providing an expressly discretionary revolving facility, making the distinction transparent.

The bank is not a bystander: In many of these structures the delayed-draw commitments are held entirely or predominantly by the private credit lender, but the borrower’s minimum-liquidity covenant, its going-concern analysis, and the bank’s own availability assumptions have usually been built on the basis that the tranche will fund. A tranche that proves discretionary is therefore a revolver problem as much as a term-loan problem, and the bank should read the funding conditions as closely as the borrower does.

Separating the tests: The lenders should seek to separate the milestone test, the evidence test, and the funding conditions. A milestone may be objectively achieved while its evidence standard remains subjective. A well-negotiated committed growth tranche should specify:

• the milestone definition—an identifiable event tied to financial statements, regulatory correspondence, or signed contracts;
• the evidence standard and the lender’s response period;
• the MAC overlay, sometimes narrowed for committed tranches to payment capacity and legality;
• the default condition, sometimes limited to payment, insolvency, and specified material defaults;
• a hard outside date; and
• an express statement as to whether further credit approval is required.

The documents should also address a lender’s failure to fund when contractually required. After notice and a short cure period, the documents should suspend its voting rights and distributions, apply amounts otherwise payable to it toward the funding shortfall, and permit (without requiring) reallocation, fronting, assignment, or replacement, so that non-defaulting lenders are never forced to increase commitments or assume unpriced risk.

Partial achievement and outside dates: Stepped milestone draws can be useful where each step corresponds to independently verifiable de-risking; for example, successive amounts upon trial enrollment, top-line data, and a regulatory submission. But partial achievement should not create implied waivers or expand the total commitment. Outside dates should protect the lender against an indefinite commitment while fairly allocating external delay risk, with any extension conditioned on continued compliance, updated evidence, and a fixed cap.

Conclusion

Bank-private credit partnerships work when each source of capital does the job it is best positioned to do. The documents should translate that division of labor into explicit, coordinated rules.

When documentary architecture, voting power, cash control, funding certainty, and enforcement authority are each negotiated on their own terms and then coordinated through consistent definitions and triggers, the structure can protect both lender classes and give the borrower access to capital that is predictable, subject to satisfying each lender’s conditions.

Mayer Brown has prepared a term-sheet-stage responsibility matrix and issues list for bank–private credit co-lending structures. For a copy, or to discuss a particular transaction, please contact any of the authors.