Implementing "Fungible" Incremental Term Loans

INTRODUCTION

In many cases, borrowers and arrangers of incremental term loans desire that the incremental term loans be "fungible" with an existing tranche of term loans. In this context, "fungibility" means that (1) from a tax perspective, the incremental term loans will be treated as part of the same "issue" as the existing tranche of term loans, (2) under the loan documents, the incremental term loans will be treated as part of the same tranche as the existing tranche of term loans (and, from an administrative perspective, the administrative agent will not need to track the incremental term loans separate and apart from the existing tranche of term loans) and (3) the terms of the incremental term loans will be identical to those of the existing tranche of term loans (with the exception of original issue discount (OID) and upfront fees). From a commercial perspective, a lender should be indifferent as to whether it holds the existing tranche of term loans or