TOOL 6.1
A number of the following conditions need to be present for this option to be practical.
Bilateral Loan Reduction
- The borrower /credit base has excess liquidity/undrawn bank lines
- Client is allowed to use these to reduce/repay Rabobank’s debt and does not anticipate our actions causing a liquidity squeeze
- The bank has identified the problem early and there is little/no concern or recovery action by other lenders/creditors
- There are no legal obstacles to Rabobank’s proposed action. In particular the facility can be cancelled without legal action being taken against the Bank (e.g. uncommitted lines) and the withdrawal of the Bank does not trigger cross default in other agreements
- Secondary sale on financial markets possible?
Syndicate Loan Reduction
- The bank can sell the debt on the secondary / distressed debt markets
- If the amount is small, it may be possible to negotiate a “special one off deal” with the agent bank in strictest confidentiality
Contingent Facility Reduction
- Facility not used
- Cash available for deposit to cover the risk
- Possible to take the cash as additional security (see below)
Additional Security / Repayment from Asset Disposal
The pre-conditions for this strategy are:
- Unencumbered assets are available and the borrower is willing to pledge / sell them
- No legal restrictions e.g.
‒ negative pledge
‒ equally rateable
‒ asset disposal restriction - Asset disposal does not cause a breach of financial covenants
- A small risk of collateral /sale agreements being overturned by future insolvency proceedings e.g. hardening periods
