Practical Law Glossary Item 6-500-2816 (Approx. 3 pages)
Glossary
Refinancing Cliff
Market term used for the looming over-demand for bank loan refinancings by borrowers. It is called a cliff because many of the loans entered into during the boom years are due to mature around the same time.
After the financial crisis, there was less liquidity available in the loan markets, which left borrowers facing uncertainty about whether there would be sufficient liquidity in the loan market to enable them to refinance their loans when they matured. To deal with the refinancing cliff and the anticipated lack of lenders willing to provide new loan facilities, borrowers began to consider alternatives to address their concerns about their loan maturities, such as:
In the case of private equity sponsored borrowers, a sale of the company by the sponsor to repay the bank debt.
Although the refinancing cliff remains a concern, borrowers and lenders have actively addressed the issue since it was first identified, particularly with amend & extends and bond refinancings. As a result, the refinancing cliff has been reduced and generally shifted to 2017.