Loan Documentation and Security

Course Overview:

This course provides a full coverage of all of the important aspects of lending. It sets the scene by explaining the banks approach to lending, the roles of the key departments in the bank and the key documents in the process.

The programme then proceeds to discuss where to focus in analysing the loan and examines the key commercial terms in the loan and security documents from the perspective of both the lender and the borrower. Reference is made to established case law (Spectrum) and to recent cases, such as Stabilus and Urvasco and their relevance to key clauses and aspects.

Whilst Loan Market Association precedents are widely used as a point of departure for loans throughout Europe, there are a number of key clauses which are left “blank” for negotiation, in particular the various “permitted” baskets which need to be tailored on a case by case basis. Furthermore, syndicated (and club) loans raise additional issues which are not relevant in bilateral loans, such as voting thresholds and transfer restrictions.

In view of the standardised approach to lending across Europe, the course is presented so that it has a pan-European relevance.

Course Content:

Facilities in general

• Investment grade vs high yield – key dividing line in credit markets, why & how it matters
• Preliminary issues for the borrower – the 7 key aspects
• Types of bank facilities & key issues
  • Committed vs uncommitted facilities
  • Overdraft, term loans, RCFs, multiple option facilities, swingline facilities
• Obtaining a loan – bi-lateral vs club vs syndicated deals
  • Key differences
• Repayment styles and what drives them
  • Amortising vs balloon vs bullet
  • Lenders approach to amortisation

Overview: Key documents & their uses

• Commitment and mandate Letter
• Term sheet
• Fee letter
• The loan facility agreement
• Security documentation

Case Study: Review key aspects of the LMA term sheet in the context of a relevant deal including the market flex

The key players in a loan & their roles

• Dramatis personae in the loan (bilateral, clubs & syndicated)
• The mandated lead arranger
• Origination & syndication departments
• Credit department
• Portfolio department
• The facility agent & security agent
  • key lessons from the Stabilus case

Issues relevant to syndicated (& club) deals

• The various types of Lenders & what they want
  • Banks, CDOs, institutional lenders, credit & hedge funds, direct lenders
• Role and importance of “The Instructing Group”
• Critical voting thresholds
• Transfer restrictions

General approach to the loan

• The Lender’s approach to the Loan
• The borrower’s aims
• Interplay of the various “models/scenarios”
• How to “read” a loan facility agreement
  • What to do and what not to do
  • What are the key areas to focus on
• Generic drafting issues
  • Materiality
  • Reasonableness
  • De minimis / permitted baskets
  • Other conditional clauses (might, may, will, would etc)
  • Further assurances – provide less assurance since Ford v Polymer Vision
• Negotiating tactics in handling the banks
  • What do the lenders want – the 3 key areas
  • Knowing where to focus your negotiating firepower
  • How to handle the lenders when things “go wrong”

Different types of facilities – use and key issues

• Overdraft – why these are unsuitable for corporates
• Term Loans
  • Uses – general corporate purposes, M&A, capex
  • Typical terms
  • Tranching and alphabet notes – rationale and use
• Revolving credit facilities
  • Typical terms & problem areas
  • Fee /margin structure – what’s market for committed amounts
  • Clean-downs – why they matter, what to look for
  • Rollovers & cashless rollovers (lessons from Lehman)
  • Dealing with “headroom”

The senior facility agreement – the key commercial terms

• The LMA primary loan senior facility agreements
  • when and where are they used
• Scope of the Loan
  • “the Restricted Group” – where and why it matters
• “Permitted baskets” what they are and why they matter
• Interest & fees
  • Arrangement fees
  • Commitment fees
  • Typical margins
  • Utilisation periods
  • Use and interaction with hedging (SWAPS)
• Default vs. events of default and cross default
  • LMA approach vs market
  • Impact of a breach; theory vs practice
• Covenants generally
  • Information
  • General undertakings (the negative pledge & guarantor coverage test)
  • Financial covenants – typical covenants
• MAC / MAE
  • Does it matter
  • Impact of the recent Urvasco case

Case Study: Discuss specific terms in the Senior Facility Agreement specifically various formulations of the MAC clause, The maintenance covenant package (which ones should be used and why), the role of the “Permitted” baskets

Types of security

• Debentures defined (UK only)
  • Companies Act (UK) approach vs case law (impact of recent Fons case)
• Mortgages
• Charges – fixed vs floating
  • Key differences
  • Key issues for lenders & why it matters (Spectrum & Brumark Cases)
• Pledges
• Liens
• Security re intellectual property and contracts
• Security in the EU – general approach
  • Parallel debt arrangements
• Collateral in the US – general approach

Case Study: Discuss some of the key issues affecting security from both lender’s and borrower’s perspective

Registering & perfecting security

• Registering security interests created by companies & LLPs
  • Charges created on or after 6 April 2013
  • Charges created before 6 April 2013
  • Charges created by overseas companies
• Registering security over land
• Registering security over intellectual property
• Priority between company mortgages and charges
• Methods of perfecting security
  • The five key questions

What Redcliffe’s clients are saying about the course

“Excellent presentation and real life examples. Very knowledgeable presenter with a lot of varied experience”

“Very clear explanation of the more technical areas”