SGS 1 (Term Sheet)

Question 1

What is the role of the Arranger?

Answer 1

Bank which puts the syndicate of banks together
Advise borrower,

DD and preparation of IM (doc used to market loan to potential syndicate members),

Drafting and negotiating loan documentation with borrower

Question 2

Who is the arranger appointed by?

Answer 2

Borrower

Mandate letter makes clear whether appointed on best efforts or underwritten basis.

Question 3

Arranger vs Agent?

Answer 3

Arranger’s role ceases on signing of loan agreement - agents role now begins.

Question 4

Agent’s role?

Answer 4

Represent syndicate and act on their instructions.
Check conditions precedent,

Determine LIBOR

Postman

Interpret agreement provisions

Administer loan transfers.

Question 5

Can an agent take unilateral action?

Answer 5

Yes, under LMA 26.2 - allows for time pressure.

But unlikely to in order to limit liability.

Question 6

Who determines the interest rate?

Answer 6

Average rate calculated by ICE and determined by Agent.

Question 7

What is the effect of an Agent being appointed on an underwritten basis?

Answer 7

If full syndicate not put together in time, arranger obliged to make up shortfall in amount.

Question 8

How does the agent protect itself from liability?

Answer 8

Duties precisely defined and documented in loan agreement. Seeks instructions from Majority of syndicate lenders, absolving it of liability.

Question 9

How can the Arranger limit its liability?

Answer 9

‘Important notice’ inserted at start of IM stating borrower solely responsible for info, syndicates will carry out own DD and Arranger not responsible for updating info.

Borrower to indemnify Arranger for liability arising from IM.

Question 10

What is a mandate letter?

Answer 10

Sets out terms on which borrower appoints the arranger and the basis of which the arranger has agreed to arrange the loan.
Term sheet often attached.

Question 11

Which document is legally binding?

Answer 11

Mandate letter but NOT term sheet.

Question 12

Where else would a confidentiality clause be inserted?

Answer 12

Arranger gets all potential syndicate members to sign back-to-back confidentiality agreements with Arranger on same terms as Arranger agreed with Borrower.

Question 13

First six steps in loan transaction?

Answer 13

Borrower meets relationship manager

Due diligence

Credit Committee Approval

Mandate letter

Term Sheet

Negotiation of LR, Debenture, Guarantee etc,

Question 14

Final steps in loan transaction?

Answer 14

Satisfaction of CPS

Legal opinion issued

Signing of Loan Agreement

First Drawdown / utilisation

Question 15

What are the potential liabilities of the Arranger?

Answer 15

Misinformation about borrower to syndicate lenders (fraudulent / negligent misrepresentation OR negligent misstatement)

Question 16

What are the potential liabilities of the Agent?

Answer 16

Breach of contract or breach of fiduciary duty.

Question 17

Other ways an Arranger could limit liability?

Answer 17

Make clear in facility agreement that it is not acting in a fiduciary capacity, is entitled to carry out other business with B and is not obliged to account for any profits it makes in dealings with B.

Agreement should contain clear obligation of each of the other lenders to make own credit appraisal of B before deciding to lend.

Question 18

Another important role for the agent?

Answer 18

Calling an EoD

Discretionary powers to call unilaterally but would only do this in an emergency