Longer and longer: the ever lengthening loan agreement

Longer and longer: the ever lengthening loan agreement

  • Dividends/restricted payments – bond covenants frequently permit dividends away from a «build-up» basket which comprises a 50 % of consolidated net income test, plus other build-up elements. This provision therefore the relevant definitions can set you back pages that are several.
  • General exceptions – another motorist behind lengthening covenants may be the number that is sheer of a part of present day covenants. The permitted security exceptions can be used as a simple example of lengthening provisions though there are a large number of examples. The LMA loan contract contains 11 security that is»permitted exceptions to your prohibition on safety covenant. This will be contrasted with particular cov-lite loan agreements centered on high yield covenants where there are lots of more exceptions, an example being a supply of 48 «permitted security» exceptions (and also this failed to look at the further exceptions for permitted security sharing within the deal collateral package (so-called «Permitted Collateral Liens»)).
  • Guarantees

    Cross-border discounts involve complex analysis of legalities regarding the provision of credit support and/or guarantees by subsidiaries in a number of jurisdictions. These could sometimes require particular language to protect the legality of a warranty, which might otherwise, amongst others things, (i) become void under local legislation or (ii) reveal the guarantor’s administration to unlawful or civil proceedings when you look at the jurisdiction that is relevant. This guarantor limitation language can cover anything from one or two (typically more basic) paragraphs a number of pages in jurisdictions where, as an example, a solvency and/or sufficient assets test or formula can be used whenever determining the obligation underneath the guarantee that is applicable. In cross-border discounts where there are many jurisdictions included, this may lengthen the mortgage contract to a considerable extent once the appropriate language is placed for every jurisdiction.

    Transfer provisions

    The transfer and assignment provisions have garnered more attention, with limits on transferability becoming more prevalent in sponsor-led transactions. These now detail exactly exactly what consent rights to transfer exist, at which times and during which events of standard, complete obstructs on specific transfers and rules around sub-participations and sub-contracts.


    As loan agreements have grown to be more technical, the amendments provisions have followed. Nowadays there are more bespoke components of loan agreements that just need specific events to amend, the agents get extra authorisations in respect of permitted paperwork amendments, in specific pertaining to implementation of extra facilities and permitted structural adjustment, and there might be various tiers of permission levels aside from the conventional «all lender» and «majority loan provider» consent levels (in other words. super-majority lenders). In addition, the new addition of «net brief» lender restrictions on voting on amendments has added further conditions towards the documents lender loan payday Maine.


    Although the little finger is frequently pointed at solicitors for incorporating more complex drafting and conditions to applicable paperwork, they truly are often either re re solving for the pre-existing problem which has been identified or documenting a commercially agreed place, that simply so is actually more involved and complex compared to the transaction that is precedent. Comparing any loan contract towards the LMA form could very well be a bit unjust, considering that whilst the LMA type is definitely an industry that is extremely useful form document, the commercial deal is normally centered on «market» precedent, which, as described above, has extended in the long run to both target the practical realities for the creditor/debtor relationship, but additionally to evolve documents into brand brand new kinds with extra features. Ironically, a faster time period for deals can result in also lengthier documents in the place of reduced people, as events have a tendency to include extra wording (in particular, associated with the «notwithstanding» over-ride nature) to produce a place in place of finely tune certain equivalent terms. The continuing future of loan agreements most likely points towards papers residing in their lengthier form instead of contracting, to handle the fear of inadvertently getting rid of essential debtor freedom that your market happens to be in a position to accept up to now. Nevertheless, commercial events must certanly be mindful that most of the language in that loan contract are very important, therefore agreeing new wording that is maybe not very very carefully considered may be a riskier approach in terms of future conflicts or disagreements on motives, and where feasible, it could sometimes gain events to revisit much longer conditions to try and develop a succinct contract on a specific product, without necessarily losing anything in the act.

    This publication is given to your convenience and will not represent advice that is legal. This book is protected by copyright. В© 2020 White & Case LLP

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