Short-term financing used until permanent funding is arranged. In leveraged finance transactions, a bridge facility typically has a maturity of 12 months, and also includes certain margin step-ups, which incentivize the borrower to refinance the bridge with permanent financing.
Often used in transactions involving a high yield bond component, in cases in which there is not enough time to arrange the bond financing before the closing of an M&A transaction. In this case, the Underwriters fund a bridge loan at the transaction closing. This bridge is subsequently refinanced when the high yield bonds are put in place.