book

The LSTA's Complete Credit Agreement Guide, Second Edition, 2nd Edition

Name: The LSTA's Complete Credit Agreement Guide, Second Edition, 2nd Edition
ISBN: 9781259644870

by Richard Wight, Michael J. Bellucci, Jerome McCluskey, Warren Cooke, Richard Gray

November 2016

Intermediate to advanced

704 pages

25h

English

McGraw-Hill

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Cover
Title Page
Copyright
Dedication
Contents
Preface
1 The Credit Agreement
2 Commitments, Loans, and Letters of Credit
2.1 Credit Variants2.1.1 Loans2.1.1.1 Revolving Credit versus Term Loans2.1.1.2 A and B Loan Tranches2.1.1.3 Competitive Bid Loans2.1.1.4 Swingline Loans2.1.2 Letters of Credit2.1.2.1 Application for Issuance2.1.2.2 Form of Letter of Credit2.1.2.3 Expiration Date2.1.2.4 Limitations on Amount2.1.2.5 Examination of Documents2.1.2.6 Borrower’s Reimbursement Obligation2.1.2.7 Participations by Lenders2.1.2.8 Strict versus Substantial Compliance2.1.2.9 Indemnification2.1.2.10 Cash Collateral2.1.3 Synthetic Letters of Credit2.1.4 Bankers’ Acceptances2.2 Commitments2.2.1 Several Liability2.2.2 Reducing Revolving Credit Commitments2.2.3 Terminating Commitments2.2.4 Increasing Commitments: Accordion Features and Incremental Facilities2.2.4.1 Accordion Feature2.2.4.2 Incremental Facilities2.2.4.3 Recent Developments2.2.5 “Termout” of Revolving Credit Commitments2.2.6 Loan Commitment Letters2.3 Multicurrency Facilities2.3.1 Ratable Committed Dollar/FX Loans2.3.2 Nonratable Committed Loans2.3.3 Local Currency Tranches2.3.4 Uncommitted FX Loans2.3.5 Multicurrency Competitive Bid Loans2.4 Second Lien and Unitranche Facilities2.4.1 General Observations2.4.2 Bankruptcy Issues2.4.2.1 Post-Petition Interest2.4.2.2 Debtor-in-Possession Financing and Use of Cash Collateral2.4.2.3 Automatic Stay2.4.2.4 Contest Rights2.4.2.5 Plan Confirmation2.4.2.6 Aggregate Effect2.4.2.7 Recent Bankruptcy Decisions2.4.3 Unitranche Facilities2.5 Minimums, Multiples, and Frequency2.6 Notices and Mechanics of Funding2.7 Amend and Extend2.8 Refinancing Facilities2.9 Cashless Settlement
3 Interest and fees
3.1 Interest3.1.1 Base Rate Interest3.1.2 LIBOR Interest3.1.2.1 General Principles3.1.2.2 Interest Periods3.1.2.3 Reserve Requirements3.1.2.4 Why LIBOR?3.1.2.5 LIBOR Scandal and Recent Developments3.1.3 Competitive Bid Loans3.1.4 Other Pricing Options3.1.5 Applicable Margins3.1.5.1 General Principles3.1.5.2 Margins Based upon Credit Ratings3.1.5.3 Margins Based upon Financial Tests3.1.6 Interest Payment Dates3.1.7 PIK Interest and “Toggle” Loans3.1.8 Default Interest3.2 Fees3.2.1 Commitment Fees3.2.2 Facility Fees3.2.3 Utilization Fees3.2.4 Letter of Credit Fees3.2.5 Swingline Fronting Fees3.2.6 Upfront Fees3.2.7 Administrative Agency Fees3.3 Computation of Interest and Fees3.4 Accrual Conventions3.5 Business Day Conventions3.6 Lending Offices3.7 Yield Protection3.7.1 Increased Costs3.7.2 Capital Costs3.7.3 LIBOR Market Disruption3.7.3.1 Background3.7.3.2 Components of the Market Disruption Clause3.7.3.3 Historical Issues with the Market Disruption Clause3.7.4 Illegality3.7.5 Breakfunding3.7.5.1 General Principles3.7.5.2 Breakfunding upon Initial Drawdowns3.7.5.3 Sell-Down Costs3.7.5.4 Compared to Prepayment Premiums3.7.6 Taxes3.7.6.1 Evidence of Payments3.7.6.2 Actions by Lenders to Minimize Taxes3.7.6.3 Refunds and Credits3.7.6.4 Exclusions3.8 Interest Savings Clauses
4 Amortization and Maturity
4.1 Payments Generally4.1.1 Immediately Available Funds4.1.2 Time of Payment4.1.3 Extensions for Nonbusiness Days4.1.4 Obligation to Repay Absolute4.2 Scheduled Repayment4.3 Advancing the Maturity Date4.4 364-Day Facilities4.5 Stripped Loan Facilities4.6 Voluntary Prepayments4.7 Mandatory Prepayments4.7.1 Revolving Clean Downs4.7.2 Borrowing Base4.7.3 Asset Sales4.7.4 Casualty Events4.7.5 Debt and Equity Issuances4.7.6 Excess Cash Flow/Cash Sweep4.7.7 Change of Control4.7.8 Currency Adjustments in Multicurrency Deals4.8 Allocation of Prepayments4.9 Cover for Letters of Credit4.10 Prepayment Opt Outs4.11 Prepayment Premiums4.12 Multiple Borrowers

5 Conditions Precedent
5.1 Effectiveness Conditions5.1.1 Signing versus Closing5.1.2 Execution; Lender Addenda; Fronting Letters5.1.3 Matters Relating to Organization and Authorization5.1.4 Opinions5.1.5 Government Approvals5.1.6 The MAC Condition5.1.7 Conditions That Relate to Perfection of Collateral5.1.8 Promissory Notes5.1.9 Special Conditions Applicable to Non-U.S. Borrowers5.1.10 Repayment of Other Debt5.1.11 Other Conditions5.1.11.1 Appraisals5.1.11.2 Solvency5.1.11.3 Environmental Due Diligence5.1.11.4 Insurance5.1.11.5 Patriot Act5.1.11.6 The Catchall5.1.12 Effectiveness5.2 Ongoing Conditions5.2.1 Representations5.2.2 Defaults5.3 SunGard Conditionality in Acquisition Financings
6 Representations
6.1 Legal Matters Representations6.1.1 Organization, Existence, Power, and Qualification to Do Business6.1.2 Due Authorization6.1.3 Due Execution6.1.4 Enforceability6.1.5 No Conflict6.1.6 Government Approvals6.1.7 Compliance with Law; Licenses6.1.8 Investment Company Act6.1.9 Anti-Corruption Regulations6.1.10 Office of Foreign Assets Control Regulations6.1.11 USA PATRIOT Act6.1.12 Margin Regulations6.2 Financial Condition Representations6.2.1 Financial Statements6.2.2 Material Adverse Change6.2.3 Litigation6.2.4 Projections6.2.5 Taxes6.2.6 Pension and Welfare Plans6.2.7 Solvency6.2.8 Material Agreements6.3 Representations and Disclosures Regarding the Business6.3.1 Capitalization6.3.2 Subsidiaries and Investments6.3.3 Real Property6.3.4 Existing Debt and Liens6.3.5 Title to Property6.3.6 Labor Matters6.3.7 Intellectual Property6.3.8 Environmental Matters6.3.9 No Burdensome Restrictions6.4 Representations by Foreign Borrowers6.4.1 Commercial Activity6.4.2 Pari Passu Ranking6.4.3 Legal Form6.4.4 Foreign Taxes6.4.5 Sovereign Borrowers6.5 Other Representations6.5.1 Completeness of Disclosures6.5.2 Status as Senior Debt6.5.3 Perfection and Priority of Security6.6 The Special Circumstances of Acquisition Financings
7 Covenants
7.1 Some General Principles7.2 Scope of Covenant Coverage7.2.1 Subsidiaries Generally7.2.2 Restricted and Unrestricted Subsidiaries7.2.3 Significant Subsidiaries and Immaterial Subsidiaries7.3 Covenant Definitions7.3.1 Definitions Generally; GAAP and IFRS7.3.2 Key Financial Definitions7.3.2.1 Debt7.3.2.2 EBITDA7.4 Financial Covenants7.4.1 Date-Specific versus Performance versus Hybrid Covenants; Annualized and Rolling Periods7.4.2 Phase-In and Pro Forma Treatment7.4.3 Date-Specific Financial Covenants7.4.3.1 Net Worth7.4.3.2 Net Worth Ratio7.4.3.3 Current Ratio/Working Capital7.4.4 Performance-Based Financial Covenants7.4.4.1 Interest Coverage Ratio7.4.4.2 Debt Service Coverage Ratio7.4.4.3 Fixed Charges Coverage Ratio7.4.4.4 Lease Payments7.4.4.5 Capital Expenditures7.4.5 Hybrid Financial Covenants7.4.5.1 Leverage Ratio7.5 Affirmative Covenants7.5.1 Disclosure Covenants7.5.1.1 Financial Statements7.5.1.2 Compliance Certificates7.5.1.3 Notices of Material Events7.5.1.4 Catchall Provisions7.5.1.5 Delivery7.5.2 Inspection Rights7.5.3 Insurance7.5.4 Miscellaneous “Who-Can-Object” Covenants
7.5.4.1 Books and Records
7.5.4.2 Properties7.5.4.3 Existence and Franchises7.5.4.4 Compliance with Law; Sanctions and Anticorruption Laws7.5.4.5 Payment of Taxes and Other Obligations7.5.4.6 Government Approvals7.5.4.7 Substantive Consolidation7.5.5 Use of Proceeds7.5.6 Interest Rate Protection7.5.7 Pari Passu Ranking7.5.8 Further Assurances7.6 Negative Covenants7.6.1 Lien Covenant7.6.1.1 Lender Liens7.6.1.2 Grandfathered Liens7.6.1.3 Permitted Encumbrances7.6.1.4 Purchase Money Liens7.6.1.5 Acquisition Liens7.6.1.6 Secured Debt Liens7.6.1.7 Non-guarantor Liens7.6.1.8 General Lien Basket7.6.2 Equal and Ratable Sharing Clause7.6.2.1 Documentation Issues7.6.2.2 Sharing Rights7.6.2.3 Voting Rights7.6.2.4 Collateral Agent7.6.3 Negative Negative Pledge or Burdensome Agreements7.6.3.1 Grandfathered Restrictions7.6.3.2 Boilerplate Restrictions7.6.3.3 Secured Debt Restrictions7.6.3.4 Sale Restrictions7.6.4 Debt7.6.4.1 Lender Debt7.6.4.2 Grandfathered Debt7.6.4.3 Intercompany Debt7.6.4.4 Purchase Money Debt7.6.4.5 Acquisition Debt7.6.4.6 Subsidiary Debt7.6.4.7 Debt Basket and Ratio Debt Basket7.6.5 Disqualified Stock7.6.6 Fundamental Changes, Asset Sales, and Acquisitions7.6.6.1 Fundamental Changes7.6.6.2 Asset Sales7.6.6.3 Acquisitions7.6.7 Sale-Leasebacks7.6.8 Investments7.6.8.1 Grandfathered Investments7.6.8.2 Cash and Cash Equivalents7.6.8.3 Subsidiaries7.6.8.4 Guarantees7.6.8.5 Acquisition Investments7.6.8.6 Investment Basket7.6.9 Lines of Business7.6.10 Derivatives7.6.11 Guarantees or Contingent Liabilities7.6.12 Dividends and Equity Repurchases7.6.12.1 Stock Dividends7.6.12.2 Subsidiary Dividends7.6.12.3 Employee Stock Plans7.6.12.4 Preferred Dividends7.6.12.5 Dividend Baskets7.6.13 Tax-Sharing Payments and Permitted Tax Distributions7.6.14 Restrictions on Subsidiary Distributions7.6.14.1 Grandfathered Restrictions7.6.14.2 Permitted Debt Restrictions7.6.14.3 Legal Restrictions7.6.14.4 Sale Restrictions7.6.14.5 Limited Customary Restrictions7.6.15 Modification and Prepayment of Other Debt7.6.16 Affiliate Transactions7.6.17 Amendments to Organic Documents and Other Agreements7.6.18 Fiscal Periods and Accounting Changes7.6.19 Passive Holding Company7.7 Incorporation by Reference7.8 Covenant Lite
8 Guarantees and Security
8.1 Guarantees and Security Generally8.2 Guarantees8.2.1 Guarantees Generally8.2.2 Guarantee of Payment versus Guarantee of Collection8.2.3 Waivers8.2.4 Subrogation8.2.5 Reinstatement8.2.6 Insolvency of Borrower8.2.7 Continuing Guarantee8.2.8 Summary Procedure8.2.9 Guarantee Limitations and Rights of Contribution8.2.10 Subordination8.2.11 Limitations on Guarantee of Hedging Obligations8.3 Collateral Packages8.3.1 Conditions8.3.2 Representations8.3.3 Further Assurances Covenant8.3.4 Lien Covenant8.3.5 Defaults8.3.6 Voting8.3.7 Expenses8.3.8 Agent Authorizations8.4 Springing Liens8.5 Collateral Allocation Mechanism8.6 Deemed Dividends
9 Defaults and Enforcement
9.1 Events of Default9.1.1 Default in Payment9.1.2 Inaccuracy of Representations9.1.3 Breach of Covenants9.1.4 Cross-Default; Cross-Acceleration9.1.4.1 Why a Cross-Default?9.1.4.2 What Debt Is Crossed?9.1.4.3 Meanings of “Cross-Default” and “Cross-Acceleration”9.1.4.4 Mandatory Prepayments9.1.5 Insolvency9.1.5.1 Voluntary9.1.5.2 Involuntary9.1.5.3 Admission9.1.6 Judgment Default9.1.7 ERISA Events9.1.8 Environmental Events9.1.9 Change of Control or Management9.1.10 Invalidity of Guarantees or Liens9.1.11 Foreign Borrowers9.1.12 Material Adverse Change9.1.13 Specialized Events of Default9.1.14 Significant Subsidiaries9.2 Remedies9.2.1 Stop Lending9.2.2 Terminate Commitments9.2.3 Accelerate9.2.4 Demand Cover for Letters of Credit9.2.5 Institute Suit9.2.6 Demand Payment from Guarantors9.2.7 Foreclose on Collateral9.3 Rescission9.4 Waterfalls9.5 Setoff9.6 Individual versus Collective Action9.7 Lender Liability Risks9.7.1 Breach of Contract9.7.2 Creditor Control9.7.3 Tortious Interference9.7.4 Environmental Liability9.7.5 RICO9.7.6 Securities Laws9.7.7 Wrongful Coercion
10 Interlender, Voting, and Agency Issues; Defaulting Lenders
10.1 Agency Issues10.1.1 Appointment10.1.2 Rights of Administrative Agent Individually10.1.3 No Fiduciary Duty10.1.4 Exculpation10.1.5 Reliance10.1.6 Delegation10.1.7 Filing Proofs of Claim10.1.8 Credit Bidding10.1.9 Successor Agents10.1.10 Collateral and Guaranty Matters10.1.11 Syndication and Other Agents10.2 Lender Indemnification10.3 Voting10.3.1 Basic Rule10.3.2 Multitranche Agreements10.3.3 Consents Requiring More Than a Majority10.3.3.1 Money Terms10.3.3.2 Pro Rata Provisions10.3.3.3 Voting10.3.3.4 Conditions10.3.4 Unanimous versus Affected Lender Consent10.3.5 Special Lender Consents10.3.6 Collateral Security10.3.7 Vote Splitting10.3.8 Lenders That Default10.4 Pro Rata Treatment10.5 Sharing of Setoffs and Other Claims10.6 The Clawback Clauses10.7 Access to the Loan Register10.8 Defaulting Lenders10.8.1 Defining a Defaulting Lender10.8.2 Disenfranchising Defaulting Lenders10.8.3 Mitigating Fronting Bank Exposure10.8.4 Forfeiture of Fees10.8.5 Application of Payments10.8.6 Removing Defaulting Lenders from the Syndicate10.8.7 Removing a Defaulting Administrative Agent
11 Assignments and Participations
11.1 Distinguishing Assignments and Participations11.2 Assignments11.2.1 The General Rule for Successors and Assigns11.2.2 Consent Rights over Lender Assignments11.2.2.1 Defaults11.2.2.2 Assignments to Lenders and Lender Affiliates11.2.2.3 Assignments to Borrower Affiliates11.2.2.4 Agent Consent Rights11.2.2.5 Issuing and Swingline Lender Consent Rights11.2.2.6 Unreasonably Withholding or Delaying Consent11.2.2.7 Absolute Consent Rights11.2.2.8 Consent During Primary Syndication11.2.2.9 Other Considerations11.2.3 Eligible Assignees and Disqualified Lenders11.2.4 Minimums11.2.5 Transfer Fees11.2.6 Loan Register11.3 Participations11.4 Loan Pledges11.5 Third Party Beneficiaries11.6 Are Loans Covered by the Securities Laws?
12 The Boilerplate
12.1 Notice Provisions12.1.1 Notices Generally12.1.2 Electronic Notices12.2 No Deemed Waivers12.3 Cumulative Remedies12.4 Colorado River Clause12.5 Expenses12.6 Borrower Indemnification; Consequential Damages12.7 Governing Law12.8 Enforcement Provisions12.8.1 Jurisdiction; Process Agents12.8.2 Venue and Forum Non Conveniens12.8.3 Waiver of Sovereign Immunity12.8.4 Waiver of Jury Trial12.8.5 Judgment Currency12.9 Severability; Counterparts; Integration; Captions12.9.1 Severability12.9.2 Counterparts; Effectiveness12.9.3 Integration12.9.4 Captions12.10 Electronic Execution12.11 Survival12.12 USA PATRIOT Act
13 Borrower Rights
13.1 The Right That Lenders Make Loans13.2 The Right That Lenders Mitigate Costs13.3 The “Yank-a-Bank” Provision13.4 Documentation from Lenders13.5 Implied Covenant of Good Faith and Fair Dealing; No Implied Fiduciary Duties13.6 The Right to Designate Additional Borrowers13.7 Equity Cure Rights13.8 Confidentiality13.8.1 The Confidentiality Clause13.8.1.1 Disclosure to Regulators13.8.1.2 Disclosure Required by Law or Subpoena13.8.1.3 Disclosure to Other Agreement Parties13.8.1.4 Exercise of Remedies13.8.1.5 Under Confidentiality Agreement13.8.1.6 With Consent of Borrower13.8.1.7 Information Already Public13.8.1.8 Confidential Tax Treatment13.8.2 Remedies13.8.3 Use Restrictions13.8.4 Destruction of Records13.9 Loan Buybacks13.9.1 Documentary Impediments13.9.2 Overcoming Documentary Issues13.9.3 Buyback Methodologies13.9.4 Effect upon Amortization13.10 Amend-and-Extend and Refinancing Facilities
14 Regulatory Developments
14.1 2013 Leveraged Lending Guidance14.2 Agency FAQs14.3 Impact of the Guidance
Appendix I – Table of Authorities
Appendix II – LSTA Model Credit Agreement Provisions
Appendix III – LSTA Form of Contractual Recognition Provision
Index

Content preview from The LSTA's Complete Credit Agreement Guide, Second Edition, 2nd Edition

CHAPTER 1 The Credit Agreement

Neither a borrower nor a lender be;For loan oft loses both itself and friend,Hamlet Act I, Scene 3

Even Shakespeare understood the risk of making a loan. Not only can the loan be lost, but the cordial business relationship between the parties can be harmed along the way. There is no sure antidote to this hazard, but a clearly drafted agreement between borrower and lender that defines for each what to do and not to do certainly helps.

The credit agreement (also commonly referred to as a loan agreement) is but one of many genres of agreement under which a business can obtain borrowed funds. Other examples include agreements for the issuance of senior or subordinated debt securities in the public markets, private placement ...

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The LSTA's Complete Credit Agreement Guide, Second Edition, 2nd Edition

by Richard Wight, Michael J. Bellucci, Jerome McCluskey, Warren Cooke, Richard Gray

CHAPTER 1

The Credit Agreement

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