Amending Representations and Undertakings

Question 1

What are representations?

Answer 1

Statements of fact about the Borrower and Borrower’s business made on the day of singing

Question 2

How are representations repeated?

Answer 2

They are deemed repeated on the date of each Utilisation Request and first day of each Interest Period

Question 3

Utilisation Request

Answer 3

Request for a loan

Question 4

What happens if a representation cannot be repeated?

Answer 4

Event of default - occurs when the Borrower cannot repeat the rep, not when the bad event itself occured

Question 5

Why does a Lender seek representations from the Borrower?

Answer 5

Flush out problems, reduce risk, gives control (EoD)

Question 6

‘Material Subsidiaries’

Answer 6

May have many and insignificant subsidiaries (dormant companies) so Borrower will not want these to sign up to the reps

Question 7

‘Default’ vs ‘Event of Default’

Answer 7

‘Default’ includes potential Events of Default (grace periods where Borrower can rectify representation).

So, if deemed representation takes place, must make sure drafting is ‘Event of Default’ so excludes grace period potential EoDs.

Question 8

What is an undertaking?

Answer 8

Borrower makes promises to Lender to do or not do something (i.e. covenants)

Question 9

What are the 3 types of undertakings?

Answer 9

1) Information undertakings
2) Financial covenants
3) General undertakings

Question 10

What is a negative pledge?

Answer 10

Restrict Borrower/Guarantor from granting further security over its assets

Question 11

How to draft a negative pledge acceptable to both parties?

Answer 11

‘Permitted Security’ carve out - allow Borrower/Guarantor to create some types of security in the future so they can still run their business

Question 12

Financial Indebtedness

Answer 12

Debt