This week we wrap up our unitranche series by asking the $64,000 question that always surfaces in discussions about the future of the unitranche: How will it fare in bankruptcy?

With providers that do not bifurcate the unitranche between first-out and second-out lenders, there are no intercreditor issues to consider.

But for those that do, how second-outs are treated relative to first-outs is critical. Can they object to a sale of the company by the first out lenders? How about a DIP provided by the first-outs? Should the second-outs be granted post-petition interest?

Leslie Plaskon, a partner with Paul Hastings, outlined three themes related to intercreditor issues. “The first is enforceability,” she says. “That’s been helped with more AALs being acknowledged and signed by borrowers. So bankruptcy courts are more likely to view the AAL no different than ‘regular way’ intercreditor agreements.”