The Credit Documentation Suite

What are typical documentation used by parties when issuing debt?

The commonly used documents that parties use are:

• Commitment letters
• Facility agreements
• Security documents
• Bond indentures
• ISDA documentation
• Intercreditor agreements
• Common terms agreements

What are the features of each of these documents and why are they needed?

Commitment Letters - Documents the basic T&Cs of the proposed facility, subject to negotiation and conclusion of satisfactory documentation. They come with an expiry date, called a ‘drop dead’ date, between 30 – 180 days from issue date and are not binding on either party.

Facility Agreements - Also known as the loan agreement and it contains all theT&Cs required to document the transaction. It is legally binding on all the signatories to the agreement. 

Security Documents - Depends on type of transaction but usually includes documents such as mortgage agreement or pledge document or a guarantee agreement. Security documents are also legally binding on all parties.

Bond Indenture - It is a legally binding document detailing the terms and conditions of the bond, including covenants and events of default

ISDA Documentation -  The standard documentation published by the International Swaps and Derivatives Association (ISDA) and is only applicable if the lender and borrower enter into derivative arrangements. Any derivative contract will be documented according to an ISDA master agreement (contains the standard terms and conditions), a schedule (contains specific negotiated terms ) and the confirmation (contains the basic commercial terms of the trade)

Intercreditor Agreements - A document entered into between a group of bilateral lenders and the borrower. Used when a number of lenders have each provided bilateral lending facilities to the borrower, but may share a pool of collateral, or want to ensure the same T&Cs across all the bilateral facilities.

Intercreditor Agreements usually govern

• The role and responsibilities of the security trustee
• The pool of assets comprising the shared collateral
• The ranking and priority of each lenders’ claim on the assets and cash flows
• The effect of any insolvency event
• The process for enforcement of security
• The responsibilities of the various lending parties

Common Terms Agreements -  Goes along with intercreditor  agreements and it contains all the T&Cs that will apply across all relevant documentation

Which documents are appropriate for each transaction and how are they standardised?

Choice of documentation depends on the type of transactions. For a secured term loan from a bank, the documentation suite usually includes a facility agreement, a mortgage document and a fee letter. Documentation is highly standardised as banks in EMEA and APAC have adopted the templates provided by the Loan Market Association to document their bilateral lending facilities.