Negotiating A Facility Agreement For A Corporate Borrower Checklist

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All credit agreements require the borrower to recite certain facts as true and acknowledge that the lender is relying on the truth of those recitations. There are two schools of thought on insurance and guarantees. Many see the terms interchangeable. Determine if the borrower`s receipts should be paid directly into a vault controlled by the lender. If so, determine if it is a “soft” lockbox (in which the borrower can withdraw money from the account before a default without the lender`s consent) or if it is a “hard” closing box (in which withdrawals must be approved or approved in advance for the duration of the loan). In most cases, a soft-lockbox is all it takes, although the lender still has the right to debit the account for regular debt service. There may also be provisions concerning advances on insurance or proceeds from disposal. These often allow the borrower to use these funds first to replace the assets sold or damaged funds received in respect of them. These provisions allow costs and taxes to be deducted, so only net revenues should be used to replace assets.

Even lawyers experienced in insurance provisions do not have the necessary expertise to assess the adequacy of the amount of coverage requested or the deductibles allowed, especially in the context of civil liability policies. These findings require knowledge of insurance market conditions and experience with the types, frequencies and amounts of commitments that that particular borrower`s business is likely to face. Even if the lender gives in to this request, the borrower should be prepared to accept an external deadline until which the offense must be cured, regardless of the circumstances. Ninety days is an excellent result; 60 should be acceptable. Particular attention should be paid to all “cross-default” clauses that affect the date on which a failure as a result of one agreement triggers a default below another. These should not apply to on-demand facilities provided by the creditor and contain properly defined default thresholds. On the other hand, “relevance” is something worth fighting for, such as the lender`s agreement that consent should never be “inappropriately refused, conditioned, or delayed.” A lender is bound by implied or legal obligations of good faith and fair trade, but there is no general obligation to act “reasonably” in all contracts or in a particular decision. But this concession can be difficult, especially in tight credit markets. It is never available in a section dealing with credit defaults. Smaller borrowers often say they are surprised by dividend bans, but the lender`s opinion is always the same: debt is paid before equity. The lender will have every interest in the salaries being paid by the company and can be expected to limit them. Nevertheless, some carve-out of dividend procation are generally available.

These include exceptions for: (1) dividends paid exclusively in common shares; (2) contractual obligations already in force concerning the payment of dividends on preferred shares; and (3) Distributions to shareholders (of pass-through companies) in amounts sufficient to pay their share of the company`s income. .

Mutual Agreement In Other Words

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“Agreement.” Merriam-Webster.com thesaurus, merriam weaver, www.merriam-webster.com/thesaurus/agreement. Called November 27, 2020. . .

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