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The ACT Borrower's Guide to LMA Loan Documentation for Investment

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The ACT Borrower's Guide to LMA Loan Documentation for Investment The ACT Borrower’s Guide to LMA Loan Documentation for Investment Grade Borrowers Dutch Edition Produced by and December 2010 Introduction to the Dutch Edition In February 2010, Slaughter and May and the Association of Corporate Treasurers (the “ACT”) published an updated version of the ACT Borrower’s Guide to LMA Loan Documentation for Investment Grade Borrowers (the “Slaughter and May/ACT Guide”). LMA loan documentation is widely used in the Dutch loan market. This volume includes the Slaughter and May/ACT Guide plus a Dutch supplement for borrowers operating in the Dutch market, the “Dutch perspective on LMA Loan Documentation for Investment Grade Borrowers” (the “Dutch Supplement”). The Dutch Supplement contains guidance for borrowers reviewing draft facility agreements based on the LMA’s recommended forms and which are being entered into by Dutch Obligors or which are to be governed by Dutch law. We are grateful to the ACT and to Slaughter and May for permitting us to prepare the Dutch Supplement by reference to the Slaughter and May/ACT Guide. The comments in the introduction to the Slaughter and May/ACT Guide apply equally to the Dutch Supplement. In particular, it is written in general terms and its application to specific situations will depend on the particular circumstances. De Brauw Blackstone Westbroek N.V. December 2010 slaughter and may the association of corporate treasurers Contents 1. The ACT Borrower’s Guide to LMA Loan Documentation for Investment Grade Borrowers (produced by Slaughter and May, February 2010) 2. The Dutch perspective on LMA Loan Documentation for Investment Grade Borrowers (produced by De Brauw Blackstone Westbroek N.V., December 2010) 3. Contact details slaughter and may the association of corporate treasurers The ACT Borrower’s Guide to LMA Loan Documentation for Investment Grade Borrowers Produced by slaughter and may February 2010 This guide has been produced for the ACT by Slaughter and May, to provide assistance for corporate treasurers reviewing draft facility agreements based on the LMA documentation for investment grade borrowers. slaughter and may the association of corporate treasurers Contents Introduction 1 Part I: Overview 3 1. How to approach the investment grade agreement 3 2. Transactions for which the investment grade agreement is suitable 5 3. Key features of the investment grade agreement 5 4. The alternatives 7 5. Amendments made to the investment grade agreement in 2009 7 6. The LMA market conditions provisions 8 7. Key points left for negotiation or insertion 10 8. Other LMA documentation 12 Part II: Commentary on The Investment Grade Agreement 15 Clause 1: Definitions and interpretation 15 Clause 2: The facilities 24 Clause 4: Conditions of utilisation 25 Clause 5: Utilisation 27 Clause 6: Optional currencies 28 Clause 7: Repayment 29 Clause 8: Prepayment and cancellation 31 Clause 9: Interest 36 Clause 10: Interest periods 40 Clause 11: Changes to the calculation of interest 41 Clause 12: Fees 45 Clause 13: Tax gross up and indemnities 46 Clause 14: Increased costs 58 slaughter and may the association of corporate treasurers Clause 15: Other indemnities 61 Clause 16: Mitigation by the lenders 62 Clause 17: Costs and expenses 63 Clause 18: Guarantee and indemnity 63 Clause 19: Representations 64 Clause 20: Information undertakings 73 Clause 21: Financial covenants 82 Clause 22: General undertakings 82 Clause 23: Events of default 89 Clause 24: Changes to the lenders 96 Clause 25: Changes to the obligors 102 Clause 26: The role of the agent and the arranger 103 Clause 27: Conduct of business by the finance parties 104 Clause 29: Payment mechanics 105 Clause 30: Set-off 106 Clause 31: Notices 106 Clause 32: Calculations and certificates 107 Clause 35: Amendments and waivers 107 Clause 36: Confidentiality 110 Part III: LMA Ancillary Documentation 119 Glossary 123 the association of corporate treasurers slaughter and may Introduction The ACT has been involved in the development of the LMA’s loan documentation for investment grade borrowers since the project was first launched in 1996. The LMA was established by a group of banks primarily to foster the development of the secondary loan market. One of the factors hampering the development of this market was, however, the range of differences in the terms of the underlying loan agreements. So the LMA’s aim in publishing a form of facility agreement was to promote greater efficiency in both primary and secondary markets. The recommended forms of investment grade facility agreement (the “Investment Grade Agreement”) were first published in 1999. The text was settled by a working party of banks and solicitors, and included representatives of both the BBA and the ACT. The ACT has continued to work with the LMA on the revisions of the Investment Grade Agreement since then. The LMA has not, however, consulted the ACT in relation to all its documentation. For example, the leveraged facilities agreement (the “Leveraged Facilities Agreement”), designed for non-investment grade borrowers, has not been agreed by the ACT. The LMA Finance Party Default and Market Disruption Clauses (the “LMA Market Conditions Provisions”) were not discussed with the ACT prior to publication in June 2009. This guide to the LMA’s documentation for investment grade borrowers is in three parts: Part I is an overview of the main commercial issues for corporate treasurers in relation to the Investment Grade Agreement. This includes an introduction to the LMA Market Conditions Provisions, in section 6, which cross-refers to more detailed comments in Part II. Part II is a commentary on the provisions of the Investment Grade Agreement. Part III comments on some of the LMA ancillary documentation, including the LMA primary and secondary market confidentiality letters. Terms defined in the Investment Grade Agreement have the same meanings in this guide. The guide refers to the clause numbers in the Investment Grade Agreement. As these are liable to change in a draft prepared for a transaction, the clause name is given as well as the number. slaughter and may the association of corporate treasurers 1 NOTE This guide is written in general terms and its application to specific situations will depend on the particular circumstances involved. Whilst it seeks to highlight certain issues which are regularly raised by borrowers in relation to the Investment Grade Agreement, it does not purport to address every issue which borrowers could or should raise. It does not necessarily describe the most borrower-friendly approach that may be taken. The observations in this guide relating to market practice may not be appropriate or relevant to all types of transaction. What is achievable in any particular case will depend on a variety of factors, including the identity of the borrower and the lenders, and market conditions. In particular, the guide has been written in the period following the collapse of Lehman Brothers, when the financial markets have been the scene of exceptional difficulties and upheaval, the outcome of which is not yet clear. Readers should therefore take their own professional advice. This guide should not be relied upon as a substitute for such advice. Although Slaughter and May have taken all reasonable care in the preparation of this guide, no responsibility is accepted by Slaughter and May or any of its partners, employees or agents or by the ACT or any of its employees or representatives for any cost, loss or liability, however caused, occasioned to any person by reliance on it. Slaughter and May February 2010 2 the association of corporate treasurers slaughter and may Part I: Overview The aim of this overview is to help corporate treasurers to form a view on the terms contained in the Investment Grade Agreement. Their view will depend on a variety of factors, including the strength of their company’s credit rating, the nature of the transaction in question, and so on. The points set out below fall under the following headings: 1. How to approach the Investment Grade Agreement 2. Transactions for which the Investment Grade Agreement is suitable 3. Key features of the Investment Grade Agreement 4. The alternatives 5. Amendments made to the Investment Grade Agreement in 2009 6. The LMA Market Conditions Provisions 7. Key points left for negotiation or insertion 8. Other LMA documentation 1. HOW TO APPROACH THE INVESTMENT GRADE AGREEMENT Essential guidance on how to approach the Investment Grade Agreement is set out in a Joint Statement of the LMA, the BBA and the ACT. The Joint Statement is as follows: JOINT STATEMENT The recommended form of syndicated facility agreements (the “Primary Documents”) were developed by a working party consisting of representatives of the Loan Market Association, the British Bankers’ Association, the Association of Corporate Treasurers and major City law firms. It is hoped that the existence of the Primary Documents will facilitate more efficient negotiation of loan documentation for the benefit of primary and secondary loan markets. Through the involvement of the three associations in the working party, together with the law firms represented, the objective was to balance the interests of borrowers and lenders. In the Primary Documents, financial covenants and related definitions have been deliberately left blank. slaughter and may the association of corporate treasurers 3 When considering use of the Primary Documents it is recommended that borrowers and lenders should: consider the option of continuing to use existing documentation carefully consider changes to the Primary Documents that may be required always have the benefit of independent legal advice The three associations believe that the Primary Documents will provide a valuable aid to the development and efficiency of the syndicated loan market. Kim Humphreys Ian Mullen Richard Raeburn Chairman Chief Executive Chief Executive Loan Market Association British Bankers’ Association The Association of Corporate Treasurers Three essential points for treasurers emerge from the Joint Statement: Use of the Investment Grade Agreement is not mandatory.
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