SGS 4 (Conditions Precedent) Flashcards
What are conditions precedent?
Specific conditions which bank requires a borrower to fulfil before part or all of the loan facility takes place.
What is the function of CPs?
Shows L that legal and factual matters which influenced L’s assessment of credit risk are in order, verified and that B’s risk profile has not changed since ICC approval was first obtained.
Consequences on non-compliance with CPs?
B can’t deliver utilisation request so can’t draw down funds
commitment fee remains payable from date of LA
availability period continues to run
could make it a condition subsequent if can’t fulfil before first draw down.
Why do banks prefer unanimous SH approval even where there is only a requirement for an OR?
Avoids risk of disgruntled shareholders bringing court action in the future.
Forces B to disclose whether there are any disgruntled shareholders.
What is a legal opinion?
Document provided by L’s solicitor, addressed to L, commenting on matters of law
Where syndicated, addressed to Agent bank, on their behalf, or addressed to each SL individually.
Purpose of a legal opinion?
Confirms B’s corporate capacity and that Finance Documents (i.e. loan agreement, debenture and guarantee) are legally VALID, binding and ENFORCEABLE.
How is the solicitor’s liability limited in a legal opinion?
o documents law firm has looked at to give the opinion
o assumptions as to FACT – e.g. documents given are true documents; no changes etc.
o qualifications as to the LAW – e.g. might be instances in insolvency where the documents are not enforceable
When is a legal opinion required?
Large loans (complex documentation)
Secured lending – cover enforceability and any risks.
Overseas jurisdictions
Foreign legal opinion?
required from foreign counsel in jurisdiction where L is taking security over assets.
what does a foreign LO cover?
Corporate CAPACITY of company in that jurisdiction
VALIDITY of the choice of English law to govern documents
ENFORCEABILITY of Finance Documents under the local law
How do NFI and NPs help structural subordination?
No financial indebtedness or negative pledge
NFI = limits total debt Subco can incur thereby reducing number of creditors that would rank above L1 on winding up.
NP = Prohibits subco from granting further security interests and thereby preventing Holdco being pushed further down winding up list.
How does a guarantee / security from subsidiary aid structural subordination problem?
effectiveness depends from whom you receive it
Security will provide L1 with direct recourse to assets of Subco (ranks as fixed or floating charge holder)
NB issue if NP already exists in Such-L2 agreement.
Guarantee means L1 will rank as unsecured creditor.
Contractual subordination?
contractual agreement that JL will not recover junior debt from B until SL paid in full.
No effect on statutory order of priority
rationale for entering into a subordination agreement for junior lender?
Increased margin or fees provided for greater exposure
If there is a need for cash injection into company/group (increasing group liquidity), JL may be willing to be subordinate to attract new L (SL)
Who are legal opinions given about?
Those who have obligations to the lenders (obligors i.e. borrower and guarantor)
