Loan Facility Agreements I

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