More than a super majority of first and second lien term loan lenders to travel nursing company Medical Solutions have signed on to what could be the boldest cooperation agreement to date.

This co-op, drafted by Gibson Dunn, allows for the possibility of up to four tiers of treatment: (1) SteerCo parties (2) initial parties (3) subsequent parties and (4) Non co-op parties. As will be explained below, although the co-op does not actually require different tiers of treatment, it allows the flexibility to do so by not promising that certain lenders will receive pro rata treatment outside of their specific tier within the co-op.

This is in stark contrast to a traditional co-op pact, where all creditors are to be treated pro rata, with the exception of a carveout premiums for a SteerCo. As a result, a minority of lenders are choosing to steer clear of the co-op and instead organize with Glenn Agre, as reported by 9fin.

This cooperation agreement, reviewed by 9fin, contemplates a potential transaction that has the support of:

1. “Required Parties” which refers to initial parties holding at least 75.01% in aggregate principal amount of the first lien term loans that constitute “Record Date Paper” held by all initial parties at the applicable time; and
2. “Required Second Lien Parties” which refers to initial parties holding at least 75.01% in aggregate principal amount of the second lien term loans that constitute “Record Date Paper” held by all initial parties at the applicable time. 

Record Date Paper refers to certain loans held, owned, or beneficially held or owned, by members of the steering committee.

As mentioned above, the agreement also provides for a specified scheme of treatment for members, which includes:

1. For SteerCo parties: (a) pro rata treatment (whether first or second lien loans) among SteerCo members — taken separately any fees or premiums — any ability to provide new money financing, and any exchange, roll-up, allocation, backstop, or similar arrangement (together, the “Specified Matters”), and (b) the assurance that all loans listed in 1(a) shall be treated no worse than, in the aggregate, any loans of non-SteerCo parties who signed on to the co-op prior to the initial deadline and loans of non-SteerCo parties who signed on thereafter.
2. For initial parties: (a) pro rata treatment among other initial parties with respect to the Specified Matters listed in 1(a), but with the exception of certain fees or premium that shall be payable solely to the specified SteerCo crossholder parties and (b) the assurance that all loans listed in 2(a) shall be treated no worse than, in the aggregate, any loans by non-SteerCo parties who signed on to the co-op after that date.  
3. For subsequent parties: (a) pro rata treatment among non-SteerCo subsequent parties with respect to the Specified Matters and (b) that all loans listed in 3(a) shall be treated no worse than, in the aggregate, any loans held by non-co-op parties.
4. No assurances for non-co-op parties.

The key here is that the drafting does not provide any assurance that initial parties will get the same pro rata treatment with regard to the “Specified Matters” as SteerCo parties.

The only assurances are (1) they will be treated pro rata to other initial parties, (2) initial parties are not entitled to the carveout premium with the exception of certain SteerCo parties that have cross-holdings — this pertains to second lien SteerCo members who own non-SteerCo first lien loans which are part of the initial parties’ paper, those first lien loans will not be entitled to the SteerCo treatment but will still receive the fees and premiums, (3) even if initial purchasers do receive pro rata treatment to the SteerCo with respect to any new money, or other “Specified Matters” they will not be entitled to any fees or premiums reserved for the SteerCo and (4) they will not receive worse treatment than subsequent parties nor non-co-op parties.

This cooperation agreement has an outside date of 12 months from the effective date provided that 75.01% of fist lien term loan SteerCo parties may choose to extend the agreement for up to three additional 90-day periods. After that, any extension requires all parties consent.

Gibson Dunn did not respond to requests for comment.