#3282 - Amending Identified Problems In A Credit Agreement Crib Sheet - Finance and Capital Markets

Amending Identified Problems in a Credit Agreement

What is the problem?

Why is it an issue?

Does the issue prevent the borrower from making any of the representations and/or complying with any undertakings in the Agreement?

What amendments will the Arranger want to include (i.e. which CPs to include)?

What amendments will the borrower wish to make?

1. Environmental Contamination of a prospective property acquisition

   1. Why is it an issue?

      1. Litigation costs

      2. Clean-up costs could go into the millions of pounds

      3. Costs of new valuations or environmental audit

      4. Might have to close the business for a time whilst the problem is being rectified

      5. Bad publicity

         1. Reduce customers

      6. Value of the property may fall

         1. Lower security for the bank

   2. Credit Agreement

      1. Litigation pending or threatened

      2. Financial Projections

      3. Compliance with laws

      4. Environmental clause

   3. Amendments by Arranger (Bank)

      1. New valuation of the property based on the environmental information that has come to light

      2. Investigation into the costs of clean-up and establishing liability

         1. Do not buy if the cost of clean-up is going to cost more than the value of the property

      3. Borrower should gain an indemnity from the seller for the costs of clean up

         1. Although it should be noted than an indemnity is only as good as the person giving it

      4. Insist on insurance, in the event of some liability being proved

      5. Minimise risk to employees

         1. Erect a fence to rope or block off contaminated area

      6. Obtain counsel’s opinion as to the success of a defence to a claim

   4. Amendments by borrower

      1. Negotiate a carve-out relating to particular litigation

      2. Add a financial threshold

      3. Add a timescale

      4. De minimis threshold for Material Adverse Effect

      5. Save as disclosed
         

2. Dispute with Supplier

   1. What is it an issue?

      1. Litigation costs

      2. May need to find another supplier at a higher price or there may not be another

      3. May need new goods which could disrupt business and prevent trade continuity

      4. Supplier might refuse to supply other products to the target

      5. Poor publicity if other suppliers find out that there is a sour-relationship

      6. Depends on the value of the contract in issue

         1. Will it have a severe impact on the syndicate’s decision to lend?

   2. Credit Agreement

      1. Litigation pending or threatened

      2. Default under another contract

   3. Amendments by Arranger (Bank)

      1. Evidence that the claim has been settled

   4. Amendments by the borrower

      1. Excluding…or save as disclosed

      2. De minimis provision
         

3. Property to be relocated

   1. Why is it an issue?

      1. Costs of defending the litigation

      2. Costs of moving the property

      3. Loss of revenue whilst property is closed

      4. Is there a breach of planning laws?

      5. Goodwill might be affected by bad publicity, the potential closure of the property or any cancellation of bookings

      6. Could there be a change in the valuation of the property

         1. Could this affect the value of the syndicate’s security?

   2. Credit Agreement

      1. Litigation

      2. Valuation

      3. No breach of laws which will affect the value of asset (planning permission)

      4. Breach of laws

   3. Amendments by Arranger (Bank)

      1. Counsel’s opinion about the likelihood of a successful defence

      2. Practical solution

   4. Amendments by borrower

      1. Save as disclosed

      2. De minimis on Materially Adversely Affect
         

4. Revised Business Plan

   1. Why is it an issue?

      1. Will it have a material impact on the company?

         1. Will the balance sheet change?

   2. Credit Agreement

      1. Pari passu ranking

      2. Negative pledge

      3. Disposals of assets

      4. Financial indebtedness

   3. Amendments by Arranger (Bank)

      1. Bank consent to terms of revised business plan

   4. Amendments by borrower

      1. Carve out

      2. De minimis for a time period
         

5. Negative Pledge

   1. Why is it an issue?

      1. Does it fit with the overall agreement

      2. Do clauses need to be deleted or altered

   2. Amendments by Arranger (Bank)

      1. Is there an absolute prohibition that could prevent the banks themselves from taking security?

   3. Amendment by borrower

      1. Carve out

      2. Boiler-plate provision to carve out any security that arises out of the operation of the law
         

6. Share & Dividend Clause

   1. Why is it an issue

      1. Does it fit with the overall agreement

      2. Do clauses need to be deleted or added...