There are usually “standard” negotiating points raised by borrowers, for example.B. a standard definition of significant adverse changes/effects usually focuses on the impact that may have something on the debtor`s ability to fulfill its obligations under the corresponding facility agreement. The borrower may try to limit this to his own obligations (and not those of other debtors), the borrower`s payment obligations and (sometimes) his financial obligations. In the event of non-repayment of a loan, the lending bank reserves the right to contact the third party of its choice for repayment. Most borrowers are unaware of this clause and find it inconvenient when contacted by such third parties to reimburse fees. A facility agreement can be divided into four sections: mandatory costs: this formula, which relates to the costs incurred by banks in complying with their regulatory obligations, is rarely negotiated. It is provided as a timeline for the installation agreement. However, the interest rate should only apply to LIBOR-based facilities and not to base interest rate facilities, as a bank`s base interest rate already contains a sum reflecting mandatory costs. In order to avoid disputes, here we take a closer look at some of the terms of a home loan and what they actually mean. There are many definitions in each installation agreement, but most are either standard – and generally undisputed – or specifically for the individual transaction.
They should be carefully checked and, where appropriate, well compared to the lender`s letter of offer/term-sheet. Standard events: these will be large. However, there are good reasons to justify them and, if negotiated properly, they should not allow the loan to be used unless it is a serious breach of the Facility Agreement. The lender should only have the right to demand repayment of the loan if an event of default has occurred and continues. If the omission has been corrected or rescinded, the lender should cease to do so. Contrary to what you think, the “default” clause does not mean that you do not pay for your EMIs. Instead, it can relate to the borrower`s expiration, a co-borrower`s divorce, or even the fact that you haven`t repaid a loan from another bank! LIBOR: The London Interbank Offered Rate (LIBOR) is a daily benchmark rate based on the interest rates at which banks can borrow unsecured funds from other banks. It is usually defined for the purposes of a facility agreement by referring to a set of screens (usually the British Bankers Association interest settlement rate for the currency and the period in question) or the base reference rate, which is the average rate at which the bank can obtain information about the London interbank market.
This clause defines the coverage to be provided for the loan for the entire term of the loan. It is customary for the property to be acquired to be allocated as security for the loan made available. However, if this is not enough, which can happen due to a fall in market prices, the lender may require additional collateral to cover the bank`s outstanding amount. Borrowers: It is important that the definition of “borrowers” covers all group businesses that may need access to the loan, including revolving loans (flexible credit as opposed to a fixed amount repaid in tranches) or a working capital element. These must include all target companies that are acquired with the funds made available. It may be necessary to provide that future subsidiaries will be able to join the group of borrowers. If there is a reason why the target companies cannot be parties to the agreement at the time of their execution – for example, in the case of acquisition by a public limited company – the prior agreement of the bank would have to be obtained so that they could subsequently be included in the agreement. If there are foreign group companies, it is worth considering whether or how they have access to possible credit facilities. . . .