Credit Agreements and stakeholders Flashcards
Significant terms in a credit agreement
- Facilities
- Finance parties
- obligors (borrowers + guarantors)
- repayment
- general undertakings
- information undertakings
- financial covenants
- events of default
- agent
Alle the terms of a credit agreement are..?
NEGOTIATED!
Credit agreement is usually an agreement between which two parties?
- banks (finance parties)
- company group (obligors = borrowers + guarantors)
What are the Facilities in a CA?
- amounts
- purpose
- availability
- e.g. amortising loans, term loans, revolving (wc) loans
Repayment factors CA
- scheduled
- voluntary
- mandatory
- cash sweeps
General undertakings CA
e.g. compliance with the law
Information undertakings CA
i.e. supply information to finance parties
Typical financial covenants
1) Leverage
2) Interest cover
3) Cash Flow cover
What is meant by events of default and what do they include?
Events of Default are violations of the credit agreement.
Include:
- Violating a general/information undertaking or financial covenant
- failing to make a required payment (interest/ loan repayment)
- cross default
- other violation
Who is appointed in the CA?
- Agent of the banks (e.g. facility agent, security agent=
What are possible consequences of an event of default taken by the banks?
- financial parties may demand immediate repayment of the loans or take other actions
Who are the 3 key stakeholders in (re)financing?
1) Lenders
2) Management
3) Shareholders
Characteristics of Lenders (SH)
- interests and incentives vary according to their priority/ seniority
- priorities: protect seniority position in terms of payment priority and security; maintain balance of credit risk vs. return and security; have management team in place in which banks have confidence; ensure management and shareholders demonstrate commitment to business
- will require fees for the efforts and actions
Characteristics of the Management (SH)
- are the legal representatives of the company, thus also carry legal risks/ obligations
- are appointed (and removed) by shareholders
- can file the company for bankruptcy
Characteristics of Shareholders (SH)
- are the legal owners of the company and, generally, cannot be deprived of their property (i.e. shares)
- appoint (and remove) management
