Tool N1
Before Drawdown
| Conditions Precedent (CPs) | |
| Always legal CPs – do you need any collateral or deal CPs? | All CPs must be satisfied before funds paid away Lots in project/acquisition finance transactions |
| Representations and Warranties (R&Ws) | |
| Always legal R&Ws – can you get any commercial R&Ws? | Commercial R&Ws can strengthen the bank’s position substantially – relate to business risk |
After Drawdown
| R&Ws | |
| Which R&Ws are continuing? When are they deemed repeated? | Most R&Ws should continue to apply in the future Repeat at least on each interest payment date |
| Debt Priority Covenant (Refer Tool L2) | |
| With whom is the bank pari-passu? | Often just the unsecured creditors |
| Is there a negative pledge? Are there any substantial exceptions? | Essential for clean facilities. Exceptions weaken the bank’s position |
| Who does the cross-default link to? | Ideally, the major parties in the credit base |
| Restrictive Covenants (Refer Tool L2) (Refer Tool L3) | |
| Are borrower’s actions restricted? | Typically, limits on issuing debt/guarantees, sale of assets, capital expenditure, dividends, acquisitions |
| Maintenance of ownership/control | Differentiate between an undertaking from the shareholder(s), and simply an event of default if ownership/control falls below a certain percentage |
| Changes to – the borrower’s legal identity – the borrower’s type of business | May be covered by specific undertakings; less effective is the general ‘material adverse change’. Assignments by the borrower are always prohibited. |
| Others | |
| Does the agreement have income protection clauses? | Typically, alternative interest rates, taxes, changes in circumstances, increased costs, expenses. Check that the wording covers Basle II requirements |
| Continuing legality of transaction for – the borrower – the bank | – Ensure this is an event of default; for emerging market borrowers specify embargoes, sanctions etc – Ensure there is an obligation on the borrower to prepa |
| What parties are obliged to comply with the terms of the agreement? | Only signatories are legally bound by its terms. Ensure guarantors are captured either by signing the agreement, or wording in the guarantee if it is a separate document. Events of default may be triggered by the actions of external parties, such as shareholders/subsidiaries. |
| What information do you require (and when) to monitor the borrower’s financial condition? Are there any other information requirements? | Consolidated/unconsolidated data Audited/management Accounting policies and changes Time limits for delivery to the bank |
| Ability to transfer the asset; is prior consent required, and from who? | Avoid borrower’s prior consent, if possible Care re notice periods, transfer fees |
