ICC frequently receives questions from companies about the maximum financing capacity achievable with their main bank and when a second bank should be involved. In this newsletter, we explore when a club deal becomes appropriate and the recent developments regarding financing volumes and club deals.

What is a clubdeal?

A club deal is a financing structure in which two or more financiers operate under a single set of financing documentation. This typically involves LMA documentation, where lawyers formalise the financing agreements between the financiers and the company.

In recent years, banks active in the Netherlands have preferred a club deal when a company’s financing volume approached EUR 50 million. Of course, there are exceptions: if there are limited securities and/or the financing exposure cannot be quickly reduced, the club deal threshold was lowered to around EUR 40 million. Only in cases with many asset-based components such as factoring and leasing, did financiers sometimes accept significantly higher financing limits.

Recent developments

In recent months, ICC has observed that more banks are deviating from the traditional EUR 50 million club deal threshold. Cases where a single bank accepts a financing exposure of EUR 100 million are no longer exceptional. This marks a clear shift from previous years. What is driving this increase? ICC believes it is mainly driven by a commercial approach among various banks to continue serving the client exclusively and to avoid sharing side business (deposits, FX transactions, etc.) with other financiers. The question remains: which structure benefits the company more, a single bank or a club deal?

Choosing between single bank or club deal

A single bank arrangement is often easier to implement than a club deal, as the latter requires aligning multiple financiers on the financing structure, distribution of notional, pricing, securities, covenant agreements, and other clauses. This results in the disadvantage that a club deal is more expensive to realise due to longer lead times, higher upfront fees, and the involvement of external lawyers.

The main advantage of a club deal structure is that it provides a stronger platform to support future growth of your company, including: (i) acquisitions (buy and build), (ii) leap investments in new real estate and/or machinery, and (iii) significant growth in working capital needs.

It is crucial that the chosen financing structure supports the company’s strategy.

Are you curious about the best choice for your specific situation? We would be happy to discuss it with you!