Formative MCQs Flashcards
A company intends to borrow money to fund the purchase of a property under a syndicated loan
agreement. The company has received the mandate letter and the term sheet for the loan from the
lender’s solicitors. The company wants advice on the purpose of the market flex provision
included in the mandate letter.
Which one of the following statements best describes the purpose of the market flex
provision?
(3 marks)
Select one alternative:
It is a provision which allows the arranger to adjust the pricing and/or fees and/or structure of
a loan in the event of a material adverse change in the financial condition of the borrower.
It is a provision under which the borrower is restricted from issuing any other finance whilst
the facility is being arranged.
It is a provision which allows the arranger to adjust the pricing and/or fees and/or structure of
a loan in order to ensure a successful syndication.
It is a provision which allows a lender to accelerate a loan in the event of a material adverse
change in the financial condition of the borrower after the date of signing the loan agreement.
It is a provision which allows the arranger to adjust the pricing and/or fees and/or structure of
a loan in order to ensure a successful syndication.
A borrower is planning to enter into a loan agreement (based on the LMA Agreement) with a lender
to raise money for working capital purposes. The borrower is concerned about the cost of the loan
and potentially having to increase interest payments under the tax gross-up provisions in the loan
agreement.
Which one of the following correctly describes the circumstances where a borrower will be
required to gross-up an interest payment under the tax gross-up clause?
(3 marks)
Select one alternative:
The lender ceases to be a ‘Qualifying Lender’ for whatever reason.
The lender ceases to be a ‘Qualifying Lender’ due to change of law.
The lender incurs additional costs due to a change in the law relating to capital adequacy
requirements.
The lender transfers the loan in the secondary market to a bank located in a jurisdiction
without a double tax treaty in place with the UK.
The lender ceases to be a ‘Qualifying Lender’ due to change of law.
You are acting for a lender who is arranging for a borrower a £20,000,000 syndicated term loan
facility (the ‘Loan’) from a syndicate of ten banks (the ‘Lenders’). Each Lender will lend £2,000,000.
The terms of the Loan duplicate those set out in the LMA Agreement. The lender is also taking on
the role of agent in respect of the Loan (the ‘Agent’).
Which one of the following statements about the role of the Agent is correct?
(3 marks)
Select one alternative:
The Agent will check that the conditions precedent have been satisfied before drawdown of
the Loan and determine the interest rate applicable to the Loan.
The Agent can only ever exercise its powers in accordance with the instructions of either all
Lenders or the Majority Lenders
The Agent must accelerate the Loan on default by the borrower, if so directed by five of the
Lenders.
The Agent will exclude liability for any statements in the information memorandum through
an ‘important notice’ on the cover of the information memorandum.
The Agent will check that the conditions precedent have been satisfied before drawdown of
the Loan and determine the interest rate applicable to the Loan.
You are acting for a company which is planning to raise money to fund the acquisition of a property
through a syndicated loan. You have received the first draft of the loan agreement from the bank’s
lawyers for your review, which is based on the LMA Agreement. Your client would like some
advice on the difference between a mandatory prepayment event and an event of default.
Which of the following would be the correct advice to give to the client?
(3 marks)
Select one alternative:
An event of default occurs when a borrower fails to make a payment of interest or principal
under the loan agreement. A mandatory prepayment event occurs where the parties have
contractually agreed that if a specified event happens then early repayment of the loan
should occur, but it should not be considered an event of default.
An event of default occurs when a term of the loan is breached and not remedied within any
applicable grace period. A mandatory prepayment event occurs where the borrower has
breached a term of another unrelated loan agreement and the lender under the other loan
has taken action to accelerate their loan.
An event of default occurs when a term of the loan is breached and not remedied within any
applicable grace period. A mandatory prepayment event occurs when the term of the loan
expires on the maturity date requiring the borrower to repay the capital amount borrowed to
the lender.
An event of default occurs when a term of the loan is breached and not remedied within any
applicable grace period. A mandatory prepayment event occurs where the parties have
contractually agreed that if a specified event happens then early repayment of the loan
should take place, but it should not be considered an event of default.
An event of default occurs when a term of the loan is breached and not remedied within any
applicable grace period. A mandatory prepayment event occurs where the parties have
contractually agreed that if a specified event happens then early repayment of the loan
should take place, but it should not be considered an event of default.
Company Y is a trading company and is a wholly owned subsidiary of Company X. From the due
diligence it is apparent Company X is a holding company whose main assets are shares in
subsidiaries. There is an outstanding revolving credit facility between Company Y and Bank A.
Your client is Company X, which is planning to take a loan from Bank B, but Bank B is worried
about structural subordination.
Which of the following options would help Bank B address the issue of structural
subordination?
(3 marks)
Select one alternative:
Intercreditor Agreement between
Company Y and Bank B.
Security from Company Y to Bank B.
Security from Company Y to Bank A.
Guarantee from Company X to Bank A.
Security from Company Y to Bank B.
Your client is a company which intends to raise money under a revolving credit facility agreement,
which will be based on the LMA Agreement. Having received a first draft of the loan agreement
from the bank’s lawyers, your client would like some advice on the impact of the representations
clause.
Which of the following statements constitutes the most accurate advice regarding the
representations clause?
(3 marks)
Select one alternative:
The company will always have to repeat a representation that there is “No Default continuing
or might reasonably be expected to result from the making of any Utilisation”
.
The company will trigger a mandatory prepayment event if a representation, when made or
repeated, is or proves to have been incorrect or misleading in any material respect.
The company will be required to make representations on signing of the loan agreement and
must repeat certain representations on each anniversary of its financial year.
The company can argue certain representations do not need to be repeated as the lender is
protected in relation to the matter covered by the representation elsewhere in the loan
agreement.
The company can argue certain representations do not need to be repeated as the lender is
protected in relation to the matter covered by the representation elsewhere in the loan
agreement.
You act for a company which intends to raise money through a secured syndicated revolving
credit facility (the ‘RCF’). The client has received a first draft of the security document for the loan
from the lender’s solicitors which contains a further assurances clause.
Which of the following most accurately describes the purpose and function of this clause?
(3 marks)
Select one alternative:
It enables the lender to request the company to take further action or execute further
documents to enhance the lender’s security package in any circumstances.
It enables the lender to require the company at their expense to take further action or
execute further documents to enhance the lender’s security package where this is
necessary or desirable.
It enables the lender to require the company to take further action or execute further
documents to enhance the lender’s security package at the lender’s expense.
It enables the lender to open a new account as soon as they have notice of another secured
creditor lending to the company, to ensure further advances under the RCF do not lose
priority to the subsequent creditor.
It enables the lender to require the company at their expense to take further action or
execute further documents to enhance the lender’s security package where this is
necessary or desirable.
