Debt Accordions

A debt accordion is a provision that allows a borrower to expand the maximum allowed on a credit line or add a term loan to a credit agreement. A debt accordion may also be known as an incremental facility.

Debt accordions are most often offered on commercial accounts. Companies will often purchase an accordion agreement if they anticipate needing additional capital to fund expansion plans, for example. The additional funds may also be used for acquisitions, working capital and other needs. Typically, the interest rate and other terms remain the same as on the original credit limit or loan amount.

Accordion features have become increasingly common in the leveraged loan market. The advantage of these for corporate borrowers is that because they do not require a new loan agreement, they provide relatively quick access to funds. The timeliness of funds can be critical in some environments. For example, a company that may be a desirable acquisition target may be quickly snapped up by a competitor if funds are not readily available.