7. Intro to Loans Flashcards
What rep is L unlikely to agree shouldn’t be repeated
Legal reps
What should rep that info in Info Memo is not misleading be qualified by
Not misleading in any material respect
What is the effect of a drawstop
Temporary suspension of O to lend
What is a CP to 1st utilisation
Before many can be drawn down for 1st time, must comply
What does it mean to place outstanding monies on demand
Repayable on notice
What does the interest clause usually state in an LA
Floating rate, matching L’s costs, changing after X months
What kind of facility is an RCF
Committed, paying off tranches in periods, drawn down multiple times
For which clause should B argue only if reasonable opinion of L + only if ‘will’ have X effect + only for payment Os
MAC sweep up clause
Although B will likely have to agree to EoDs applying to whole group, how else to qualify?
Through thresholds or grace periods
What will L want MAC EoD to say
Refer to ALL Os, not just payment Os, and change ‘will have MAE’ to ‘may’.
Two general UTs
Compliance w/ laws and security
How to limit MAC EoD to be more B-friendly
Only situations which in the reasonable opinion of L give grounds for belief that WILL have MAE on B complying w/ PAYMENT Os
What are info UTs
E.g. to promptly inform of any pending/threatened litigation
Why should no rep refer to ‘Default’ or ‘PEoD’
Would deprive B of grace period
Typical GP for non-payment
2/3 BD for a technical error
What should be included in definition of Permitted Disposals
In ordinary course of business, trading up in quality/value and any disposals up to X limit
How can you qualify Rs&Ws drafting
By ref to B’s belief, reasonability, de minimise limit etc
What should insolvency EoD cover
Ps in any other J
What is L likely to ask for in return for Waiver Letter
Fee and/or increased margin as condition of letter
If CP is not satisfied and compliance not waived, what can L usually do
Drawstop
When is a draw stop usually triggered
By breaching CPs to utilisation
What method is used for L to waive EoD
Waiver Letter
What facility is appropriate to assist w/ cash flow for undefined projects
RCF
What should L ensure does not happen when deciding what action to take after EoD
Ensure default not waived, or will be estopped from enforcing rights under LA
What facility is appropriate if X sum needed for a medium-long period
Term loan
What fundamental UTs generally do not have GPs
Financial covenants and negative pledge
Why should commercial reps not be repeated
Only relevant up to completion
What remedies does L have outside of LA
CL remedies
How to make insolvency EoD more B-friendly
Exclude frivolous/vexatious Ps discharged within 14 days
Is there a breach of a representation if untrue between repetitions
No, as long as sorted before next repetition
GP for financial covenants
No GP as based on historic info, so can’t be remedied
What rate for Default Interest Rate is usually acceptable
2 - 3% above base rate
What must any Default Interest Rate be?
Genuine pre-estimate of costs incurred as a result of B’s late payment
What is an RCF
Cash available in tranches
What is a CP to subsequent use
CPs that must be complied with before further drawdon
Why should you still use the definition of Material Subsidiaries, even if no subsidiaries at the moment
Minor subs may be created in future
What does it mean to accelerate the loan
Demand immediate repayment
How to limit EoD based on MR by B
Limit to written reps in docs given to L
Where are L’s options following EoD set out
Under ‘Acceleration’ clause
For what clause should B argue only if failure to do X would materially impair ability to comply w/ Os under FDs
General UT to comply w/ all laws
Why is MAC EoD rarely relied on
False triggering means L must compensate B
What is a representation
Statement of fact about B’s business, certified as true at date of LA + any deemed repetitions
Why is CA wording favourable to B
L can only act when other L has actually acted
For which clause will L likely agree to ‘reasonable opinion’, but argue for ‘may’ have X effect + apply to ALL Os
MAC sweep up clause
What kind of facility is a term loan
Committed, repaid in either instalments or all at once
Two things included in pre-existing mandatory pre-payment clause
Illegality (for L) and change of control of B
Typical GP for Os that aren’t financial covenants or non-payment
5 BD if remediable - NOT if fundamental UT
Who at L decides from DD whether to loan to B or not
Credit Committee
Why will L not agree to a grace period once EoD triggered, e.g. in acceleration clause
Bc defeats the purpose of EoD
Why is CD wording favourable to L
Can act when another L entitled to act
What may B have to pay if fails to pay monies due under LA by X date
Default Interest Rate
What is a syndicated loan
2+ Ls and borrower
Commercial reps that shouldn’t be deemed to be repeated
No misleading info in Info Memo
2 kinds of CPs
To 1st utilisation and to subsequent use
three kinds of UTs & covenants
Info, financial and general
Three examples of reps which usually have UT/indemnity elsewhere, so not deemed to repeat
Tax gross-ups, stamp taxes, authorisations
Who will L want EoDs to refer to
Whole Group
What should there be no ref to in the EoD clauses
Illegality for L to lend
Three kinds of facility
Overdraft, term loan and revolving credit facility
What two kinds of loan can B have - in terms of parties involve
Bilateral or syndicated
Why should legal reps not be repeated
Won’t change
Three options L usually has in EoD
Can cancel O to lend, accelerate, or place outstanding monies on demand
What three things should you ensure B can have, as part of general UT not to dispose/give security over assrts
Permitted Security, Permitted Disposals and Minor Disposals
Example of de minimise threshold on creditors’ process EoD clause
£50k on £15m loan
What is the ‘material adverse change’ EoD
A catch all clause
What should the Waiver Letter refer to
Particular EoD only
What is creditors’ process
Other creditor seizing assets
How should you define Material Subsidiaries
5 - 10% of Group turnover or by ref to 5 - 10% of Group’s NAV
Downside of giving UTs
Time-consuming due to admin involved
What can you build in to CD clause to make it more B-friendly
De minimise threshold of e.g. 3% of loan
What clause in LA sets down purpose of loan in very vague terms
Purpose clause
What CD wording is B unlikely to get L agree to remove, even if CA wording included
EoD when other L entitled to accelerate
How should you qualify general UT to comply w/ laws
B + MS to comply w/ all laws if failure would materially impair ability to perform Os under Finance Docs
What are UTs and covenants
Promises (not) to do something
How should you try to restrict the obligations, in terms of who they apply to
B only or B + Material Subsidiaries
Why include info UT to inform L of Ps
To make L aware prior to next rep being made
How to make creditors’ process EoD more B-friendly
De minimimis threshold + discharged within 14 days
What might L do if there is an availability period in which B can borrow money
Charge commitment fee
What is the ‘Drawdown Period’ in an LA
Availability period to draw down tranches in RCF
What kind of facility is an overdraft
On-demand, uncommitted
What kind of facility is a hybrid between overdraft and term loan
RCF
What three docs make up the Finance Docs
LA, Debenture/security doc, and any ancillary docs
What facility assists with cash flow by making X amount of money easily accessible
Overdraft
What reps should not be deemed to be repeated
Legal reps, anything for which there is UT/indemnity, commercial reps and any ref to PEoD
How could you qualify ‘no litigation’ R&W
No litigation which might reasonably be expected to have MAE to best of B’s knowledge has been threatened (N/A frivolous/vexatious) against B/Material Sub
Where should illegality be dealt with
Pre-existing mandatory prepayment clause
What is a term loan
X lent for X time
When should Waiver Letter be obtained and why
Prior to entering GP to avoid triggering CD of other LAs
What should be included in the definition of Permitted Security
That existing at time of agreement + future security w/ consent - set out in Schedule
How to draft CPs to enable L to waive compliance
State to be in ‘form and substance satisfactory to L’
What is the benefit of EoD clause for L
Avoids L having to litigate
What are financial covenants
Promises to meet specific financial targets
Why is an overdraft not for big projects - where lots of money required
On-demand - can be called in at any tim
What is a bank balancing when entering into a loan
Goodwill w/ customers against credit risk
What should the definition of Minor Disposals be
1% of value of either loan or C’s assets
What is an overdraft
Borrow up to X for % daily interest
Why is the security doc separate from LA
For privacy, as security doc has to be registered at ch
When do UTs and covenants apply
Every day throughout the loan
