This course is also available on video
21 videos (3 hours 20 minutes)
Important danger areas are highlighted (from the points of view of both the lender and the borrower) in order that they may be appropriately provided for.
Participants will gain a clear understanding of the objectives of the parties and the key points for consideration. The normal negotiating compromises are illustrated in respect of specific clauses.
Course Outline
The Type of Loan Will Determine its Use
- Committed or Uncommitted Facility – when is the bank obliged to lend?
- Overdraft – is it repayable on demand?
- Term Loan – precise terms for repayment
- Revolving Credit Facility – minimum & maximum periods, amounts, notice & tranches
- Roll-Over – is it automatic or will it be prevented by a technicality?
- Limitations on transferability – Bilateral, Club or Syndicate loans
- Syndicated Facility – arrangers, syndicate members, underwriters & lead managers
- Administrative Agent & Security Trustee- duties & liabilities
- Ideal Objective of the Lender – repayment on the due dates with no trouble & no risk
- Ideal Objective of the Borrower – don’t call me, I’ll call you
- Negotiating Result? – changes with the state of the capital markets
Structure of a Loan Agreement
- The Loan Market Association – source of lender friendly documents
- Recommended Standard Clauses – operating, monitoring & boilerplate clauses
- Negotiating an LMA Agreement – soft and hard provisions
- The Use of a Term Sheet – what is it for and is it legally binding?
- The Purpose of the Loan – the use of funds is determined by a wide or narrow definition
- Conditions of Utilisation & Drawdown – the utilisation request & conditions precedent
- Costs – commitment fee, margin, LIBOR & mandatory cost (MLA formula)
- Interest Periods – the selection notice & the calculation of business days
- Representations & Warranties – how they differ from a sale & purchase agreement
- Covenants – financial, non-financial & information covenants & a negative pledge
- Permitted Security Interests – preservation of commercial flexibility
- Events of Default – what they are, what the lender can do & how they can be diluted
- Grace Periods – extra time usually permitted by the lender
- Cross-Default – an early warning for the lender, possibly commercially damaging
- MAC Clause – a sledgehammer for use in a wide or narrow context
- Qualifying a MAC clause – negotiating subjectivity, reasonableness and materiality
- Acceleration Clause – a lender’s right rapidly to terminate the loan
- Other Events of Default – e.g. change of control & illegality
- Material Adverse Effect – what does it mean & how is it defined?
- The Loan Market Association – source of lender friendly documents
Types of Security
- Possession: Actual or Constructive? – pledges & liens
- Ownership – mortgages & a bone fide purchaser for value without notice
- Rights – fixed charges, floating charges & crystallisation
- Guarantees & Indemnities – guarantor’s rights & lender’s protective clauses
- Comfort Letters – the purpose and effect of a non legally binding document
Taking Security
- Debentures – charge the core assets of the business
- Charge the Book Debts – Brumark & Spectrum
- Intellectual Property, Plant & Machinery, Subsidiaries, Goodwill – secure the lot
- Further Assurance Clause – lender’s power retrospectively to perfect the security
- Power of Attorney – an essential safeguard if a relationship breaks down
- Debentures – charge the core assets of the business
Reviewing the Document
- Lender’s Principal Concerns – check that six areas have been fully covered
- Three Stages of Protection – before drawdown, after drawdown & termination
- Borrower’s Principal Concerns – assess certainty of outcome & control of the business
- Redraft any LMA Standard Clauses – the first draft will not be borrower friendly
- Legal Opinion – only a statement that the job has been completed with due diligence?
- Lender’s & Borrower’s Final Check Before Signature – has the wood obscured the trees?
- Lender’s Principal Concerns – check that six areas have been fully covered
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