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LIBF - Level 5 > Definitions > Flashcards

Definitions Flashcards

1
Q

Nature of Facility

A

type of facility e.g. term loan, revolving credit facility

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2
Q

Availability Period

A

Between signing the agreement to the time of draw down under a term loan.

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3
Q

Conditions Precedent

A

Conditions that need to be satisfied before the borrow can draw down the funds. Usually documentation such as security forms, valuations.

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4
Q

Covenants

A

Undertakings given by the borrower as to what it will or will not do in the future.

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5
Q

Governing Laws

A

Usually be a stipulation that the facility is governed by English law but may be subject to US, Scottish or other legal jurisdiction.

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6
Q

Events of Default

A

Determine at what stage the bank can call in the loan i.e. demand repayment. A breach of a covenant is likely to trigger an event of default.

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7
Q

Documentation

A 
Certificate of Incorporation
Trading Certificate
Memorandum of Association
Statement of Capital & Shareholdings or Statement of Guarantee
Articles of Association
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8
Q

Positive Covenant

A

An undertaking to do something

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9
Q

Restrictive (or negative) Covenant

A

An undertaking not to do something

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10
Q

Quantitative Covenant

A

Financial undertakings that can be expressed numerically and can be measured against a numerical benchmark

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11
Q

Qualitative Covenant

A

Undertakings that cannot be expressed numerically. Such as assurance to not borrow until the present facility has been repaid.

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12
Q

Information Covenant

A

An information covenant is designed to ensure a smooth flow of info to the bank so that i can monitor the borrowers progress

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13
Q

Asset Protection Covenants

A

Designed to ensure that the value against which a bank is lending (or which provides security against default) is maintained.

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14
Q

Financial Covenants

A

Quantitative covenants and can be written to cover a wide range of ratios and calculations

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15
Q

Negative Pledge

A

A negative pledge is a promise by the borrower that it won’t carry out a particular action, most commonly that it will not grant security to a third party without consent of the lender

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16
Q

Pari Passu Covenants

A

The principle of pari passu covenants is that the lender is equal in all respects to other creditors.

17
Q

Remedies for Breach of Negative Pledge

A

Injunction if the lender acquires advance knowledge of possible breach
Equivalent Security Negative Pledge - gives equal and rateable security in the assets over which the 3rd party has taken security.

18
Q

Remedies for Breach of Financial Covenants

A

It may be insignificant enough to be waived by the lender
The lender may renegotiate the covenant
The company may have the ability to ‘cure’ the breach e.g. injecting new equity into the borrower

19
Q

Failure by the lender to act on a breach

A

May constitute a waiver of the breach and may be treated as a variation of the agreement. In practice, this means that the lender won’t be able to enforce the covenant or clause should any later breach occur. A solution to this is to issue a letter of breach (reservation of rights letter) acknowledging the breach but stating acknowledgement does not constitute a waiver

20
Q

Fixed Legal Charge

A

A charge over one or more specific assets of the borrower as a security for a debt. The borrower retains ownership, possession and use of the charged asset but cannot dispose of the asset without the lender’s permission.

21
Q

Floating Charge

A

Can be created by a Ltd company or an LLP. It allows the borrowers to dispose of the assets that are subject to the charge without the need for the lender’s consent and giving the purchaser of any such assets good title to them. E.g. Inventory or Receivables

22
Q

Contractual Lien

A

A right given to the lender by contract to retain goods or other assets of the debtor to secure payment or performance of an obligation, for some purpose other than security

23
Q

Possessory Lien

A

Created by operation of law and entitles the creditor to retain goods in their possession until payment is received.

24
Q

Pledge

A

A security created by contract - involves the actual or constructive delivery of possession of an asset to the lender by way of security.

25
Q

Debenture

A

A document acknowledging a debt and is a written contract by which a Ltd or LLP gives a charge on its property as security

26
Q

Typical Assets Taken As Security

A 
Land
Plant + Machinery
Cash
Stocks + Shares
Life Policies
Inventory
Receivables
Guarantees
27
Q

Rights of Guarantors

A

To pay off the guaranteed debt
Demand details of their liability
Claim the right of set-off prior to default
Right of subrogation once it has paid off the guarantee
Right of contribution from co-guarantors
To not pay more than the due amount

28
Q

Good Security

A

Easy to take
Easy to estimate value
Value remains stable
Easy to sell

29
Q

Romalpa Clause

A

When people sell to companies, they often include “Retention of Title Clauses” in the sale contract. This means the seller retains ownership until the company pays them - known as a Romalpa Clause

30
Q

Remedies of Late Loan Payments

A

Charge a higher interest rate
Charge borrower fees to cover costs of dealing with late payment
Allow a short grace or ‘cure’ period

31
Q

Formal Options Under Insolvency Act 1986

A

Appointment of an Administrator
Application for a company voluntary arrangement
Winding-Up Order

32
Q

Remedies to Insolvency

A

Sell or value secured asset
Appoint a manager / receiver over the asset
Enter into possession of the asset

33
Q

Cross Default

A

Where the borrower fails to make a payment or defaults on any of its other debts

34
Q

Measures of Quality Info

A 
Cost
Currency of Info
Relevance
Reliability
Consistency
35
Q

Insolvency Act 1986 main Objectives

A

Protect the debtor by rewarding them for prompt action
Offer a number of alternatives to insolvency to not stifle entrepreneurship
Achieve max return for creditors

36
Q

3 Corporate Insolvency Tests

A

Cash-flow Test
Balance Sheet Test
Legal Action Test

37
Q

Characteristics of strong LBO candidates

A 
Strong Cashflow generation
Leading & defensible market positions
Growth Opportunities
Efficiency enhancement opportunities
Low CapEx Requirements
Strong asset base
Proven management team

LIBF - Level 5 (1 decks)

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