Loan Facility Agreements I

Loan Facility Agreements I

Belinda Green

30 years: Credit risk specialist

In this video, Belinda introduces the typical contents of loan agreements and explores in detail the importance of definitions, the relevance of representations and warranties, the conditions precedent (both initial and ongoing requirements) for both the lender and the borrower, and the use of information undertakings throughout the life of the transaction.

In this video, Belinda introduces the typical contents of loan agreements and explores in detail the importance of definitions, the relevance of representations and warranties, the conditions precedent (both initial and ongoing requirements) for both the lender and the borrower, and the use of information undertakings throughout the life of the transaction.

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Loan Facility Agreements I

9 mins 40 secs

Overview

A typical loan agreement is a set of documents that represent the ongoing rights and obligations of all parties to the agreement. Certain terms and conditions may only be applicable on signing, such as conditions precedent on signing. Others only take effect when covenants are breached, like events of default. Irrespective of the timing, these terms will all be contained in a single document - the loan agreement.

Key learning objectives:

  • Outline the key categories of a loan agreement

  • Outline the terms and conditions lenders are required to meet in a loan agreement

  • Understand the ongoing requirements found in a loan agreement

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Summary

What are the key categories in a loan agreement?

  • Definitions
  • Representations and Warranties
  • Conditions Precedent
  • Information Undertakings
  • Covenants
  • Events of Default
  • Transferability 
  • Governing Law and Jurisdiction

What are the terms and conditions lenders are required to meet in a loan agreement?

Definitions - For the purposes of documentation, it is essential that all parties to a loan agreement comprehend exactly what certain words, phrases, and concepts mean. This is accomplished by precisely defining all the terms that, in the context of the facility documentation, have an explicit meaning. Definitions are usually found right at the beginning of the loan agreement, or as an annexure at the end of the agreement.

Representations and Warranties - Representations and Warranties are there to ensure that the lender's assessment of the Probability of Default has not changed in the period between initial negotiations and drawdown under the facility agreement. Lenders must ensure that no misrepresentation has taken place during negotiations and that all agreed components of the transaction are in place.

Conditions Precedent - Conditions Precedent (CPs) must be met both on signing of the facility agreement and whenever there is a drawdown under the facility. The primary purpose of CPs is to ensure that there has been no significant change in the credit risk profile of the borrower.

What are the ongoing requirements of a loan agreement?

  • Information Undertakings
  • Covenants

What do typical information undertakings include?

  • Provision of periodic financial information within a prescribed time period
  • Provision of a compliance certificate confirming compliance with financial covenants and other repeating representations
  • Provision of asset valuation reports or inventory and account receivables ageing reports supporting collateral taken
  • Provision of information related to ongoing projects
  • Provision of regulatory information

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Belinda Green

Belinda Green

Belinda Green is a credit risk specialist, with a career spanning 4 continents and numerous sectors. She has spent over 20 years in commercial and corporate lending roles for FirstRand Bank and UBS, where she was director of Corporate Lending from 2002 until 2013. Belinda shifted into education in 2014 and was a Faculty Lead and Senior Trainer for Moody’s Analytics Learning Solutions in Dubai for over 5 years, leading and delivering training programmes across the Middle East and Africa. In 2019, Belinda launched her own training consultancy in London, delivering learning solutions to clients around the world.

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