Guy: When I hear you talk about Master Note Facilities, I can sense your excitement. To me it has a name that sounds exciting, but let’s simply start with what it is.

Geert: A Master Note Facility is basically a pre-approved financing vehicle that allows companies exceptionally quick access to medium to long-term fixed rate debt financing. It is a readily available and cost-effective way to create additional debt capacity because all the terms are agreed upon and full legal documentation is executed, ahead of time. Importantly, the facility provides great optionality to a company because there is no obligation to use it, even in part, nor do any commitment fees apply to undrawn amounts.

Guy: Are all terms agreed upon ahead of time?

Geert: The only variable not determined ahead of time is the coupon or interest rate. The coupon is determined when the company requests a draw from the facility and will be based on market rates prevailing at that time and changes in the credit quality of the company, if any. And that’s really the point, the Facility is set up so the underwriting and legal work is completed ahead of time should a company have a need for a quick source of capital.

Guy: It seems to me that a Master Note Facility is basically a line of credit. So, is the legal document similar to a bank lending document with similar types of terms?

Geert: I believe that your analogy is reasonable albeit that the documentation is more akin to a typical debt private placement transaction, where terms and covenant protections are fully customized. As mentioned before, a major difference with a revolving credit facility provided by banks is the absence of any commitment fees or non-utilization fees.

• Maturities for drawn capital range from 5 to 20 years or more, which is typically much longer than traditional commercial bank financing. 
• Generally speaking, when MIM establishes a Facility for a company, it typically has a 3-year term with optional renewals. Total Facility amounts typically are in a range between $100 million and $250 million¹ and enable draws of $10 million clips (or equivalent in other currencies). 
• Since MIM maintains an international credit platform with a physical presence in various countries across the globe. MIM can offer companies multi-currency facilities enabling borrowers to issue debt to MIM in several currencies (e.g., $, €, £, CAD, AUD, or ¥ to name a few).

Guy: When can the Facility be drawn? And, how often and in what increments?

Geert: The facility can be drawn down at any time, and as many times as needed up to the cap. Each note can also have a different maturity and/or repayment structure, offering real flexibility to companies.

Guy: I can see the flexibility and optionality for a company. When a company goes to the wider market and issues debt it typically takes, say, 8 to 12 weeks to complete the transaction. It is very expensive too. The proceeds are all available all at once, but the cost from coupon interest also begins accruing on the day of settlement. With your master note facility, interest only accrues when money is drawn and only on the amount requested. How long does it take to set the coupon and deliver the requested financing?

Geert: When a Master Note Facility is in place, it typically takes 3 to 10 days to set the coupon and provide the financing. That said, MIM also offers the option to delay funding by months from the date of setting the coupon, resulting in a reduced cost of carry for companies. So you are absolutely right in terms of flexibility and the ability for a borrower to tailor the issuance of debt to its actual needs, impacting favorably its interest expenses.

Guy: What occurred at the height of the Pandemic? I assume that when the economy was shuttered that many needed to draw from their Facility.

Geert: During COVID, the facilities operated the way that they were designed. They are a “shelf” facility that came off the shelf. The Facilities were able to provide quick capital when cash flows abruptly halted, and companies were keen to increase their liquidity buffers given the high levels of uncertainty at the time.

Let me just add that strong relationships are a key aspect to successful direct lending agreements. We firmly believe that the goodwill MIM receives by being a good partner leads to longer lasting engagement and ‘first calls’ when other business opportunities arise.

Guy: Do you have a sense what the proceeds are typically used for when the facility is tapped? If so, what types of use?

Geert: We consider ourselves partners with those in the facility agreement, so we typically have a good idea. The proceeds could be used for a variety of purposes, but are often for capital expenditures, merger & acquisition activity, refinancing of bank or existing debt, or simply to recapitalize the company’s capital structure. In our experience, these facilities are often considered as an efficient and effective alternative to a bridge loan when an M&A opportunity arises.

Guy: This has been helpful and informative, thank you. 

Geert: Thank You

Endnote
¹ As of March 31, 2022

Disclaimer
This material is intended solely for Institutional Investors, Qualified Investors and Professional Investors. This analysis is not intended for distribution with Retail Investors. This document has been prepared by MetLife Investment Management (“MIM”)¹ solely for informational purposes and does not constitute a recommendation regarding any investments or the provision of any investment advice, or constitute or form part of any advertisement of, offer for sale or subscription of, solicitation or invitation of any offer or recommendation to purchase or subscribe for any securities or investment advisory services. The views expressed herein are solely those of MIM and do not necessarily reflect, nor are they necessarily consistent with, the views held by, or the forecasts utilized by, the entities within the MetLife enterprise that provide insurance products, annuities and employee benefit programs. The information and opinions presented or contained in this document are provided as of the date it was written. It should be understood that subsequent developments may materially affect the information contained in this document, which none of MIM, its affiliates, advisors or representatives are under an obligation to update, revise or affirm. It is not MIM’s intention to provide, and you may not rely on this document as providing, a recommendation with respect to any particular investment strategy or investment. Affiliates of MIM may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned herein. This document may contain forward-looking statements, as well as predictions, projections and forecasts of the economy or economic trends of the markets, which are not necessarily indicative of the future. Any or all forward-looking statements, as well as those included in any other material discussed at the presentation, may turn out to be wrong.
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¹ MetLife Investment Management (“MIM”) is MetLife, Inc.’s institutional management business and the marketing name for subsidiaries of MetLife that provide investment management services to MetLife’s general account, separate accounts and/or unaffiliated/third party investors, including: Metropolitan Life Insurance Company, MetLife Investment Management, LLC, MetLife Investment Management Limited, MetLife Investments Limited, MetLife Investments Asia Limited, MetLife Latin America Asesorias e Inversiones Limitada, MetLife Asset Management Corp. (Japan), MIM I LLC and MetLife Investment Management Europe Limited