SGS 1 (Term Sheet Amendments) Flashcards
What is a Term sheet?
Overview and initial summary of deal
Gives an idea of complexity and timeframe
What is the Availability Period?
Period during which money can be drawn down.
Will need to be for the entire term for an RCF.
Security reviews and valuations - Borrower’s perspective?
Entitles L to obtain up to date valuations of assets subject to security.
Assisting with this is expensive and time consuming as B liable for L’s costs.
Try to limit it to no more frequently than annually.
Undertaking not to allow the Borrower to pay dividends?
L does not want profits used to pay company before interest / principal is repaid.
compromise position is to cap amount / impose a time limit.
Lender’s assignment?
Lender will not accept non-assignment clause.
Compromise by allowing L to assign to certain parties, but requiring B’s consent for assigning to others.
Acceptance Period?
Period during which Borrower can accept the loan and its terms.
30 days is reasonable but ensure not too long as L will need to ensure B is still in substantially the same position at time of entering the loan.
Issue with only including a confidentiality undertaking in the term sheet?
It is not a legally binding document (although banks owe a common law duty of confidentiality to customers).
Repayment?
Term of loan should be from date of loan agreement.
What is the issue with delivery of the accountant’s report and legal opinion being included as conditions precedent?
Delivery is not within Borrower’s control.
Lender will not change so compromise by getting agreed draft form of opinion / report and get third parties to submit early.
To whom should reps and warranties related?
Borrower and Guarantor (i.e. should not include parties who are not party to the Loan)
Reps and Warranties?
Deal with any knowledge qualifications when negotiating each representation and warranty in loan agreement itself.
Litigation?
Add in material and delete ‘threatened’ as too vague.
Undertakings?
Does it include ‘indebtedness to third parties’. If so, following amendments:
exclude trade creditors or limit to Financial Indebtedness as defined as do not want trade creditors to lead to an EoD.
What sort of financial information should the buyer agree to give?
Always annual accounts
Interim or management may not be prepared at all by B and if so, are only intended for internal use / not audited.
Lender may still wish to view such internal accounts if they are produced.
Change of control as an event of default?
Delete as this is beyond the Borrower’s control.
Instead it should be a mandatory prepayment event (i.e. requires repayment of the loan but not an event of default and therefore will not trigger cross default positions.)
