Defaulting lenders, sponsor affiliates and snooze and lose all shrink the voting base, and with it the stake that blocks an amendment.
A blocking stake is one minus the voting threshold, applied to the commitments that actually count in the vote, not to the facility. On an illustrative EUR 375 million facility with a 66 2/3 per cent Majority Lenders threshold, the textbook answer is 125.0m. Once a defaulting lender, a sponsor affiliate and the lenders who fail to reply are taken out of the denominator, only 300.0m votes, and just over EUR 100.0m blocks: 26.7 per cent of the facility, not a third.
Worked in full in How to Read a Credit Agreement by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Every amendment, waiver and consent in a credit agreement is voted on a defined base: usually the Total Commitments, adjusted by a handful of clauses scattered through the boilerplate. Three are common in leveraged facilities. A Defaulting Lender's commitment is disregarded. Debt bought back by the sponsor or its affiliates carries no vote. And under a snooze and lose clause, a lender that does not respond to a request within the stated period, often ten or fifteen business days, is treated as if its commitment did not exist for that decision. All three shrink the base, so the stake needed to block shrinks with it. Wording varies by document, and the definitions, not the term sheet, decide which of them apply.
| Item | Amount |
|---|---|
| Term loan commitments | 300.0 |
| Revolving facility commitments | 75.0 |
| Total commitments | 375.0 |
| Less: Defaulting Lender's revolving commitment | 10.0 |
| Less: term loan held by a sponsor affiliate | 25.0 |
| Less: lenders who do not reply in time (snooze and lose) | 40.0 |
| Commitments that vote | 300.0 |
Voting base = total commitments − disenfranchised commitments − non-responding commitments
Blocking stake = (1 − threshold) × voting base, plus one euro when approval needs at least the threshold
Excel: =(1-Threshold)*(Total-Defaulting-Sponsor-Snoozed)
Step 1, the base. 375.0 less 10.0, 25.0 and 40.0 leaves 300.0. A fifth of the facility, 75.0m, has no vote on this decision.
Step 2, the threshold. Majority Lenders in an LMA-style agreement means lenders whose commitments are at least 66 2/3 per cent of the base. Approval needs 200.00m in favour; on the full facility it would need 250.00m.
Step 3, the block. A request fails if more than a third of the base votes against or abstains while still counting. A third of 300.0 is 100.00m, so anything over 100.00m blocks. That is 26.7 per cent of the facility. A lender holding 90.0m, 24.0 per cent of the facility and 30.0 per cent of the base, does not quite get there; one holding 110.0m, 29.3 per cent of the facility, blocks with room to spare.
The blocking lender must vote. Under snooze and lose, silence takes a lender out of the base. A holder who means to block but misses the deadline does not block anything; it shrinks the base and makes approval easier.
| Decision | On the full 375.0 | On the 300.0 that votes | As share of facility |
|---|---|---|---|
| Majority Lenders, 66 2/3% | 125.00 | 100.00 | 26.7% |
| Super majority, 85%, as drafted here | 56.25 | 45.00 | 12.0% |
| US style Required Lenders, more than 50% | 187.50 | 150.00 | 40.0% |
| Revolving lenders only, more than 50% (of 75.0, or the 65.0 that votes) | 37.50 | 32.50 | 8.7% |
| All-lender matters: pricing, maturity, pro rata sharing | any single affected lender | ||
The last numeric line is the one most often missed. Where a springing covenant protects only the revolving lenders, its waiver is commonly put to a class vote of those lenders alone. With 65.0m of revolving commitments that vote, 32.50m blocks: 8.7 per cent of the whole facility controls whether the borrower's only financial covenant can be waived. How that covenant is tested is in how a springing covenant works.
The US threshold behaves differently at the edge. "More than 50 per cent" means a lender with exactly half, 150.00m here, blocks; under "at least 66 2/3 per cent" the blocker needs strictly more than a third.
| Commitments snoozed | Voting base | Blocking stake | Share of facility |
|---|---|---|---|
| 0 | 340.0 | 113.33 | 30.2% |
| 20 | 320.0 | 106.67 | 28.4% |
| 40 | 300.0 | 100.00 | 26.7% |
| 60 | 280.0 | 93.33 | 24.9% |
| 80 | 260.0 | 86.67 | 23.1% |
Every 20.0m of silence lowers the stake by 6.67m. In a widely syndicated loan with many small holders, a borrower can expect a meaningful share of the base to snooze, which is why both sides count responses before counting votes.
Counting the sponsor affiliate. If its 25.0m stayed in, the base would be 325.0 and the block 108.33m; worse, the sponsor would vote for its own request, needing only 191.67m from everyone else. The disenfranchisement clause exists to stop exactly that, and a lender sizing a position to block should check that it covers affiliated debt funds as well as the sponsor itself. The second mistake is quoting a third of the facility, 125.0m, as the blocking stake. The number that matters is a third of the base on the day of the vote, here 25.00m less, 20.0 per cent lower.
How to Read a Credit Agreement reads the definitions these numbers come from, and the free workbook for this case includes the review checklist with the voting questions to answer from the document itself. For a vote in a restructuring, where the classes and thresholds are set by the court rather than the agreement, see how much debt blocks a Chapter 11 plan.
A holding large enough to stop a decision that needs a set majority. For a Majority Lenders decision at 66 2/3 per cent, it is anything over a third of the commitments that vote. On an illustrative facility where 300.0m of 375.0m votes, that is just over 100.00m, 26.7 per cent of the facility rather than the 33.3 per cent usually quoted.
A lender that does not respond within the stated period is excluded from the vote, so its commitment leaves both the numerator and the denominator. On the illustrative facility, each 20.0m of non-responding commitments lowers the Majority Lenders blocking stake by 6.67m. A lender that intends to block has to vote, because silence removes it from the count.
Usually not: leveraged credit agreements commonly disregard debt held by the sponsor and its affiliates in lender votes. If a 25.0m affiliate holding were counted on the illustrative facility, the voting base would rise to 325.0m and the sponsor would need only 191.67m from other lenders to carry a Majority Lenders decision in its own favour.
This article is one calculation from How to Read a Credit Agreement. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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