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2006 | Book

Introduction Read chapter Read first chapter

International Loan Documentation

Author: Sue Wright

Publisher: Palgrave Macmillan UK

Book Series : Palgrave Macmillan Finance and Capital Markets Series

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

A detailed study of the terms of international loan documentation with comprehensive explanations of the purpose of the provisions and of areas which may require negotiation and with an emphasis on the wording of the Loan Market Association documents. This work covers term loans and revolving credits and includes comparisons of the provisions required for investment grade borrowers, special purpose entities and asset and project based credit risks. It includes discussion of security, due diligence and legal opinions as well as Appendices explaining key issues of English law such as trusts and fiduciary duties; and a glossary of expressions commonly used in this area. The book thus provides a highly practical and comprehensive resource for bankers and lawyers, at all levels of experience, involved in international lending.

Table of Contents

Frontmatter

Introduction

Introduction
Abstract
How to use this book A word of caution is necessary at the outset. This book seeks to give readers the tools to enable them to negotiate loan agreements efficiently (i.e. with minimum expense in terms of time and money) and effectively (i.e. to result in a document which closely suits their corporate needs, whether they are borrower or lender). For this book to succeed in its aim it must be used appropriately—that is, as an aid to, and not as a substitute for, proper understanding of the commercial position of the parties. Readers need to keep in mind that loan agreements are used in widely differing commercial situations. Some examples (among the innumerable possibilities) are
  • secured loans made to start-up companies owned by entrepreneurs;
  • structured loans to special purpose companies, designed to achieve a particular tax effect or for the purpose of a particular project;
  • loans to investment grade corporates designed to provide them with liquidity.
The basic precedent for all these situations will be remarkably similar, but the changes to that precedent which are appropriate in each case will vary enormously Comments which are made in this book will only be appropriate in some (usually a minority) of the circumstances in which a loan agreement will be used. One size does not fit all. Moreover, there will be many comments which ought to be made in specific transactions which are not made in this book. The comments included are not intended to be (nor can they be) exhaustive.
Sue Wright

Administrative Provisions

Frontmatter
Chapter 1. Interpretation
Abstract
Loan agreements contain detailed definitions. This helps:
  • to ensure consistency between different provisions of the document;
  • to avoid ambiguity;
  • to keep the complexities out of the body of the agreement (see Box 1.1).
Sue Wright
Chapter 2. The Facility
Sue Wright
Chapter 3. Utilization
Sue Wright
Chapter 4. Repayment, Prepayment, and Cancellation
Sue Wright
Chapter 5. Costs of Utilization
Sue Wright
Chapter 6. Additional Payment Obligations
Abstract
Many countries (including England) require that, if a payment of interest (or other payments, such as rent under a lease, or payments of royalties) is paid by a resident of that country, the resident must, in certain circumstances, first deduct tax from that payment and account for that tax to the appropriate tax authorities. Any obligation to deduct tax in this way is generally referred to as ‘withholding tax’. The tax is a tax on the recipient and the payer of interest is, in effect, acting as a tax collector on behalf of the tax authority.
Sue Wright

Guarantee, Representations, Undertakings, and Events of Default

Frontmatter
Chapter 7. Guarantee
Sue Wright
Chapter 8. Representations, Undertakings, and Events of Default
Abstract
The loan agreement contains representations which are required to be made on the date of the agreement. It also often contains representations which are required to be made on other dates (typically, on each drawing and on the first day of each Interest Period). The purpose of the representations is,
  • in the case of representations required to be made on the date of the agreement, to trigger disclosure of information; and
  • in all cases, to give the lenders the contractual right not to advance additional monies (i.e. to act as a drawstop) and/or to accelerate the loan if the specified statements are untrue on the date they are made.
There may also be liability in misrepresentation (as opposed to liability in contract) for the borrower if the statement is untrue.
Sue Wright

Boilerplate and Schedules

Frontmatter
Chapter 9. Changes to Parties
Abstract
Clause 24 deals with loan transfers. Before looking at the wording of the clause itself, this introduction looks at the methods of transfer available and at issues which arise in relation to transfers of secured loans.
Sue Wright
Chapter 10. The Finance Parties
Abstract
Clause 26 is the only clause in the agreement where the Arranger appears. At the time the loan agreement is signed, the Arranger’s task is completed and the main purpose of referring to the Arranger in this clause is to give them the benefit of the exclusion clause. However, given that the exclusion clause is effectively retrospective insofar as the Arranger is concerned29 this clause is no substitute for including an exclusion clause in appropriate pre-loan agreement documentation.
Sue Wright
Chapter 11. Administration
Abstract
(a)
On each date on which an Obligor or a Lender is required to make a payment under a Finance Document, that Obligor or Lender shall make the same available to the Agent (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment.
 
(b)
Payment shall be made to such account in the principal financial centre of the country of that currency (or, in relation to euro, in a principal financial centre in a Participating Member State or London) with such bank as the Agent specifies.
 
Clause 29 sets out the payment mechanics. Payments are to be made to the Agent in the principal financial centre for the currency concerned (or in the case of Euro, in one of the principal financial centres or in London). This effectively passes exchange control risk and risk of insolvency of intermediaries38 to the borrower.
Sue Wright
Chapter 12. Governing Law and Enforcement
Abstract
This Agreement is governed by English 47 law.
Lenders commonly require loan agreements for large sums of money to be governed by English or New York law. This generally makes syndication of very large sums of money easier than many other governing laws because the market customarily deals in agreements under English or New York law. Another factor is the predictability of these laws. They respect freedom of contract to a large extent and are reluctant to interfere in negotiated agreements, making for a fair degree of certainty in relation to the effect of the agreement.
Sue Wright
Chapter 13. Schedules
Abstract
Schedule 1 specifies the parties.
For the original borrowers, the conditions precedent set out in the LMA Term Loan consist of corporate documents; legal opinions; and other.
Sue Wright
Backmatter
Metadata
Title
International Loan Documentation
Author
Sue Wright
Copyright Year
2006
Publisher
Palgrave Macmillan UK
Electronic ISBN
978-0-230-51479-9
Print ISBN
978-1-349-52158-6
DOI
https://doi.org/10.1057/9780230514799