SGS 4 - Legal opinions and structural subordination Flashcards
1
Q
What is the function of a legal opinion?
A
- To confirm that borrower has corporate capacity (power)
- To confirm that finance documents are legally binding, valid and enforceable
- To give lender comfort
- To reduce risk of non-repayment
- To provide alternative form of recourse for lender
2
Q
When is a legal opinion required?
A
- Secured lending
- Overseas jurisdictions
3
Q
What is the structure of a legal opinion?
A
- Existence of loan and parties to loan
- Sole legal advisers, opinion only relates to finance documents and instruction only taken from agent
- Definitions (obligor + individual finance documents)
- On what documents are the legal opinions based (sch 1 documents and enquiries on which legal opinion is based, sch 2 assumptions, sch 3 qualifications)
- Opinion only relates to English law
- Legal opinions given
- The opinion is only given in relation to the conditions precedent, cannot be relied on in any other context.
4
Q
What is structural subordination?
A
Where a loan to a subsidiary means the lender to the subsidiary will get paid first, and as such reduces the chances of the lender to the parent getting repaid.
5
Q
How can structural subordination be prevented?
A
- No financial indebtedness undertaking
- Negative pledge undertaking
6
Q
How can a situation of structural subordination be solved?
A
- Direct recourse against subsidiary (guarantee + security)
- Undertakings in loan agreement (financial indebtedness clause, negative pledge, no disposals)
- Intercreditor agreement
- Refinance loans ($$$$££££££)
7
Q
What is contractual subordination?
A
A loan to one borrower when pre-existing loans to that borrower already exist.
