Senior Stretch Loans: US vs Europe—Leverage, Amortization, Covenant Styles Compared

Senior Stretch Loans: US vs Europe Terms and Pricing

A senior stretch loan is a first-lien, senior secured term loan that pushes leverage beyond what banks usually hold while staying at the top of the collateral stack. In the US, this most often takes the form of a unitranche – one loan with blended senior pricing. In Europe, stretched senior usually means a single or dual-tranche senior facility with bank-like amortization and maintenance covenants, often paired with a small super-senior revolver.

The goal is consistent across regions: fewer intercreditor parties, certainty of funds, and leverage at levels banks will not hold, while keeping documentation and control closer to classic senior terms. Labels diverge because market plumbing diverges. US direct lenders built scale around unitranche and absorbed some broadly syndicated loan habits. Europe kept LMA-style senior conventions even as credit funds stepped in for banks.

Where the market sits now: what changes behavior

Covenants and amortization shape borrower flexibility and lender protection. Understanding these gaps is vital to picking the right product for your cash flows and M&A plan.

Covenants: US institutional broadly syndicated loans skew covenant-lite. Private credit still tests a maintenance leverage covenant quarterly in most unitranches, usually with a cushion or limited holiday mechanics. Europe is firmly maintenance-based, LMA-style, with narrower holiday appetite. Impact: greater ongoing discipline in Europe and more flexibility in liquid US deals, with private credit in the middle.
Amortization: US unitranche typically looks like TLB with 1% per year or a pure bullet, with deleveraging handled by excess cash flow sweeps sized to actual free cash flow. Europe is stickier with 1-5% annual amortization plus sweeps that bite in cash-generative credits. Impact: faster de-risking in Europe and more cash flexibility in the US.
Leverage: US private credit middle-market leverage has reset to roughly mid-4x to low-5x total debt to EBITDA. Europe tends to sit a half-turn lower for like credits where covenants are tighter and amortization is real. Impact: higher headline leverage in the US and more structural deleveraging in Europe.

What senior stretch is not: common misreads

Not first-out or last-out by default: Many US unitranches split economics internally via an agreement among lenders. Borrowers see one rate. Europe’s stretched senior often sits above a super-senior RCF without an AAL.
Not TLB plus second lien: That stack runs on separate control rights and an intercreditor agreement. Senior stretch condenses parties to increase speed and reduce documentation friction. For a deeper comparison of junior layers, see second lien loans.
Not a holdco PIK: Senior stretch is cash-pay. PIK toggles, if any, live in specific add-ons or cure tools. For PIK structures above senior lenders, explore holdco PIK notes.

Stakeholders and incentives: who wants what

Sponsors: Sponsors want speed, certainty, and the most leverage they can live with. A single maintenance covenant is acceptable if headroom is clear and EBITDA definitions are predictable. Impact: faster closings and fewer intercreditor issues.
Lenders: Lenders want downside protection without multi-layer intercreditors. They use tighter definitions, leakage controls, reporting, and single-document structures. Impact: better control in stress and a cleaner enforcement path.
Management: Management needs a covenant that matches budget volatility and working capital swings. Addback caps, step-downs, and ECF triggers determine breathing room. Impact: execution risk concentrates in covenants, not just in the headline rate.

Legal and structural differences: jurisdiction matters

Governing law: US deals lean on New York law and LSTA-style covenants, baskets, and transfers. Europe uses English law and LMA frameworks, even with Lux or Dutch borrower groups. Impact: definitions and basket logic differ. Do not assume parity.
Security package: US structures grant all-asset security and upstream or downstream guarantees subject to tax blockers. Europe layers English-law debentures with local share and receivables pledges, often through Lux or Dutch holding companies for enforcement flexibility. Impact: local formalities can add weeks in Europe.
Revolver priority: Europe favors a super-senior RCF with priority claims on working capital collateral and cash dominion triggers. The US uses pari unitranche revolvers with first-out economics in an AAL or a separate ABL with classic intercreditor agreements. Impact: liquidity control in a downturn depends on who holds the keys to cash.

Mechanics and flow: proceeds, prepayments, and covenants

Proceeds and uses: Use cases overlap across LBOs, refinancings, and add-ons. Europe writes tighter baskets and reinvestment periods. The US leans on ratio tests and grower baskets. Impact: higher flexibility for roll-ups in the US and tighter guardrails in Europe.
Waterfall and prepayment: US unitranches rely on AALs to split prepayments internally. Mandatory prepayments hit asset sales and ECF with reinvestment carve-outs. Europe compels prepayment from larger disposal and insurance proceeds with shorter reinvestment windows. Impact: more cash paydown pressure in Europe.
Financial covenants: US unitranche typically runs a single maintenance leverage covenant, sometimes springing at a revolver-draw threshold, with roughly 30-40% opening headroom. Europe tests quarterly for term loan and RCF, sometimes with interest cover. Cure rights exist in both, but Europe’s are more prescriptive. For a primer on tests and triggers, review maintenance covenants. Impact: Europe runs a stricter metronome.
Consent rights and information: The US leans on ratio-based capacity and permitted actions. Consent thresholds are high and less often triggered. Europe pushes prior consent outside narrow parameters and asks for more frequent, granular reporting. Impact: more pre-clearance in Europe, more self-executing flexibility in the US.

Economics and fees: cost vs control

Pricing: US unitranche commonly clears in the low double digits all-in at recent levels. Margins run around SOFR plus 600-700 bps with 2-3% OID, size and sector dependent. Europe prices off Euribor and often runs 50-100 bps higher like-for-like when amortization and covenants are tighter. Impact: pay a bit more for earlier deleveraging and stronger guardrails.
Amortization and sweeps: US is 0-1% scheduled amortization. Europe runs 1-5% plus ECF sweeps at 50-75% above a leverage threshold with step-downs as leverage falls. Impact: faster de-risking in Europe and more free cash flow discretion in the US.
Fees: Expect OID, ticking fees on DDTLs, undrawn fees, and prepayment premiums. US deals often include 102 or 101 soft calls for 12-24 months. Europe favors longer, stepped call protection where lenders anchor a club. For mechanics, see call protection and OID. Impact: repricing friction defines your path to cheaper capital.

A quick illustration helps. A 400 million dollar US unitranche at SOFR plus 650 bps with 2% OID and 1% amortization yields roughly an 11.8% year-one cash coupon if SOFR is 5.3%, before amortized OID and fees. A 300 million euro European stretched senior at Euribor plus 650 bps with 3% OID, 3% amortization, and a 50% ECF sweep will delever earlier, lower risk, and pull forward lender payback.

Risk allocation: where documents change behavior

EBITDA definitions and addbacks: US documents allow broader addbacks with longer realization periods and higher caps. Europe narrows both. Result: a US 4.75x covenant can behave like 4.25x under European definitions. Impact: model covenant cushions using the operative definition, not management EBITDA.
Leakage controls: US relies on ratio-based and builder baskets tied to 50% of consolidated net income, with starters and reclassification. Europe uses hard caps and stricter reclassification. Impact: US favors roll-ups and buy-and-build. Europe restrains leakage until deleveraging shows up.
DDTLs: US DDTLs are common and flexible, with step-up undrawn fees if not used. Europe uses DDTLs with tighter draw conditions, specific acquisition criteria, and narrower MAC concepts in smaller mid-market deals. Impact: faster execution for M&A in the US.
Enforcement: The US relies on Article 9 sales, strict foreclosure, Chapter 11, and AAL-governed voting. Europe uses share pledge enforcement and English schemes or Part 26A plans. Super-senior RCF lenders often have a strong say. Impact: timeframe and control vary by who controls liquidity and where collateral sits.

Comparisons and when each structure wins

Versus a BSL TLB: Senior stretch wins on speed, confidentiality, and certainty when the BSL window wobbles. It loses on headline cost when liquid markets run hot. Impact: toggling makes sense – price versus certainty is the trade.
Versus first or second lien: Senior stretch removes intercreditor friction but loses the second-lien pricing lever. Impact: fewer counterparties and faster docs versus the optionality of a separate second-lien pool.
Versus ABL: Working-capital-heavy businesses often fit an ABL plus smaller term loan better. Europe’s super-senior RCF gives some of that protection with a term solution. Impact: align liquidity optics with borrowing base discipline.

Execution timeline and owners: who drives and how fast

Decision to term sheet: US sponsors line up two to three anchors. Europe runs with one to two funds plus a relationship bank for the RCF. Focus diligence on customer concentration, free cash flow conversion, and collateral migration risks. Timing: days, not weeks, if files are ready.
Documentation sprint: US: sponsor counsel runs a unitranche precedent and negotiates a short list – leverage tests, builder baskets, EBITDA addbacks, DDTLs. Europe: LMA senior precedent tailored on amortization, sweeps, and intercreditor terms. Timing: US 3-5 weeks; Europe 4-6 weeks; add time for local security, notaries, and apostilles.
Closing deliverables: Expect lien searches, officer’s certificates, board approvals, perfection certificates, and opinions under NY or English law and local regimes. Europe adds notarizations and corporate benefit analyses in places like Germany and France. Impact: budget for both cost and clock.

Common pitfalls and quick kill tests

EBITDA fragility: If addbacks drive covenant headroom, cut them by 50% and test four quarters forward. Impact: early warning on covenant breach risk.
Cash conversion: If amortization and ECF sweeps matter, model a two-quarter inventory build. Check liquidity against springing covenants and sweeps. Impact: avoid surprise cash squeezes.
Sector leverage tolerance: Healthcare services, software, and business services handle stretch better when revenue is recurring. Cyclical industrials struggle under European-style sweeps. Stress a 15% revenue dip and 200 bps margin compression on document EBITDA.
Enforcement friction: If the security sits in a slow jurisdiction, confirm lenders can enforce share pledges within 90 days post-default. Impact: realism about remedies beats paper comfort.
Intercreditor control: Super-senior RCF lenders in Europe can drive timing. Align standstills and voting so term lenders retain a credible path to action. Impact: fewer stalemates when it counts.

What to negotiate differently by region

Maintenance covenants: US: springing off RCF usage with generous cushion and measured holiday rights. Europe: full-term testing, limited step-downs, and capped testing frequency when leverage is below a mark.
Amortization and sweeps: US: 1% scheduled and ECF sized to discretionary deleveraging. Europe: low end of 1-5% with leverage-based step-downs and carve-outs for defined growth investments.
EBITDA governance: US: higher addback caps, longer realization, and pro forma synergies. Europe: accept tighter caps but seek parity for recurring revenue adjustments with evidence.
Leakage and reclassification: US: grower baskets and reclassification expand capacity as EBITDA rises. Europe: negotiate hard-cap step-ups at leverage milestones to mimic ratio-driven flexibility.
Transfers: US: block competitors and disqualified institutions; allow free transfers within sponsor-friendly clubs. Europe: borrower consent with deemed consent after a response window; keep sanctions and AML carve-outs to enable timely transfers.

What the data suggests: match terms to plan

Visible deleveraging path: European features – amortization and sweeps – pull risk forward and improve refinance odds at a slightly higher coupon.
Buy-and-build plan: US-style unitranche flexibility on ratio debt capacity, DDTLs, and reinvestment gives room to operate. Manage springing thresholds and keep a clean covenant model.
Lender protection: If sponsor leverage pushes toward US flexibility, charge more, lower funded leverage, or add structural protection like equity cushions, warrants, or longer call protection.

What to watch over the next 12 months

BSL window: If syndicated markets stay open, US unitranche pricing will compress and documents will loosen. Europe’s large direct lending may borrow more US-style incurrence features in clubbed mega-unitranches, while the mid-market keeps maintenance and amortization discipline.
Documentation drift: Competitive auctions in Europe can produce US-style builders and ratio debt. Bilateral deals will hew closer to LMA.
Rate path and ECF: Even with cuts, European sweeps will still bite in many services businesses. US borrowers will chase repricings and soft-call roll-offs before heavy paydowns.

Practical checklist: speed without surprises

US senior stretch via unitranche

Core terms: 1% amortization and a single maintenance leverage covenant springing off RCF usage, backed by robust ratio-based baskets. For a cross-Atlantic comparison, see US vs Europe unitranche.
Repricing path: 12-24 months of 102 or 101 soft call and OID sized to hold levels and leverage.
AAL alignment: If a revolver or ABL sits alongside, align first-out or last-out economics. Test waterfalls and voting in stress.
EBITDA clarity: Define addbacks and realization timelines. Stress-test headroom under reduced addbacks.

Europe senior stretch

Deleveraging: 1-5% amortization plus ECF sweeps with leverage step-downs. Tight reinvestment rights and timelines. For a deeper dive, see senior stretch facilities.
Liquidity control: Super-senior RCF with clear draw terms and a springing covenant. Workable intercreditor standstills.
Documentation focus: LMA base. Focus on leakage, addback caps, acquisition parameters, and assignment consents.
Local mechanics: Plan for security formalities. Build scheduling buffers.

Key Takeaway

Same purpose, different paths. US execution leans into flexibility and back-ended amortization, kept in check by a single maintenance covenant. Europe leans into earlier deleveraging, tighter leakage controls, and a steadier maintenance regime. Match structure to cash generation and acquisition pace, not to the label on the cover. Price to the documents you sign, not to headline leverage. For step-by-step sponsor execution, consider unitranche deal structuring alongside any stretch solution.