Negotiating Facility Agreements

By December 13, 2020 Uncategorized

An oil pump manufacturer (Quadrant 2) wanted a multi-million dollar five-year loan to double the size of its production site and provide working capital to increase revenue. The company had been hit by low margins, inventory control problems and operational inefficiencies. However, in order to maintain market share, enlargement was necessary, even if the additional production and sales capacity could exacerbate the problems. In the end, it will be expensive to negotiate from the credit contract and the borrower should decide if it is worth it. Representations and guarantees: these should be carefully considered in all transactions. It should be noted, however, that the purpose of insurance and guarantees in a facility agreement differs from its purpose in purchase and sale contracts. The lender will not attempt to sue the borrower for breach of representation and guarantee – instead, it will use an infringement as a mechanism to call a default event and/or ask for repayment of the loan. A disclosure letter is therefore not required with respect to insurance and guarantees in the facility agreements. As a general rule, there are “standard” trading points that are advanced by borrowers, for example. B a standard definition of major adverse amendments/effects generally refers to the effect that may affect the debtor`s ability to meet his obligations under the facility contract. The borrower may attempt to limit this obligation to his own obligations (and not to other obligations), the borrower`s payment obligations and (sometimes) his financial obligations. I am not suggesting that all companies, especially the smaller ones, use this technique. However, before negotiating a long-term loan, you should get some information on the types of alliances that might be required either through a visit to finance officials in companies that have recently incurred bank debts, or through interviews with credit officials to get an idea of the types of agreements that might be needed.

Armed with this knowledge, you can mention the requirements of other banks if the potential lender is excessively restrictive. Any positive commitment that the lender`s facility will always prevail over the borrower`s other debts may be rejected, as this is not always under the borrower`s control. A negative agreement that the borrower does not take steps to influence the order of priority of the facility may be an acceptable alternative. This section contains the insurance and guarantees, commitments and delays that apply to each facility. It will also contain provisions that protect the bank from any change in circumstances that may affect its lending activities. For more information on the Cannais provisions of facilitated contracts, visit the Loan Markets Association or the Association of Corporate Treasure. Credit contracts also include delay events, including non-payment of principal or interest, non-compliance with a positive statement after the bank`s announcement of the breach, violation of a negative federal state, discovery that the presentation or guarantee was false, default in payment of money owed to another lender, and bankruptcy of the business. Involving an experienced lawyer in the type of credit you are looking for – and who is willing to take some time to learn more about your business – is an important way to create an effective approach to negotiating and entering into a credit contract.