CF - SGS 8
Terms
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- Who typically provides a first draft of loan documentation to be negotiated?
- The Bank. It will have its own standard terms for use.
- What should a borrower be mindful of when negotiating representations and undertakings?
- Should ensure can comply or else the bank will be able to call an event of default (EOD).
- What will the Bank want to achieve when drafting representations and warranties?
- Will want to make sure the representations and warranties are sufficiently narrow to allow for it to call an EOD if the borrower's circumstances change in a way that impacts its ability to repay the loan.
- How can the bank's drafting be watered down by the borrower?
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The borrower's solicitor may qualify representations or undertakings by reference to:
- materiality;
- reasonableness; and/or
- by including de minimus provisions. - What is a bank likely to require in relation to the repetition of representations and undertakings?
- Will want reps to be repeated at certain points during the loan as the bank will want to protect itself against changes in the borrower's circumstances that may affect its ability to repay.
- When are representations usually repeated?
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- Signing of the loan;
- 1st day of each interest period;
- Draw down of any monies - What does the borrower want in relation to the repetition of representations?
- As few representations as possible to be repeated as it will make it less likely that a breach of reps will occur and therefore that an EOD will be triggered.
- What argument might a borrower raise in relation to not all representations repeating?
- That certain reps will not change during the life of the loan and therefore no need to repeat.
- What is a bank trying to achieve by including a 'no proceedings pending or threatened' clause?
- Protecting itself from any pending litigation that may interfere with the borrower's ability to repay the loan monies.
- What should you be careful to look out for when you review a no pending litigation clause prepared by the bank?
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(1) Threatened litigation
(2) Subsidiaries; and
(3) opinion of the lender. - What is the issue with including wording related to the opinion of the lender in loan documentation?
- Subjective test.
- What representations are the Legal representations in a loan agreement?
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1. Status
2. Binding obligations
3. Non-conflict with other obligations
4. Power and authority - For the purpose of identifying whether a representation (to be repeated) is covered by an undertaking, what is the complimentary undertaking for 'Validity and admissibility in evidence'?
- Authorisations clause
- For the purpose of identifying whether a representation (to be repeated) is covered by an undertaking, what is the complimentary undertaking for 'Deduction of tax'?
- Tax gross up
- For the purpose of identifying whether a representation (to be repeated) is covered by an undertaking, what is the complimentary undertaking for 'No filing or stamp taxes'?
- Stamp taxes
- Where should you look before you consider the position in relation to representations and undertakings in the context of a loan agreement?
- The term sheet.
- If you add the definition of material subsidiaries, how should you define?
- 5 - 10% of the turnover or net asset value of the borrower