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DF SGS 2 Consolidation
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Comprehensive exam notes on SGS 2 debt finance based on the learning outcomes and small group session activities at BPP.
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Loan Provisions: Representations, Undertakings and Margin ProtectionI. Introduction
Bank is taking on a ‘credit risk’ -> lender will want to exercise control as to what borrower can and cannot do
(but to run its business, borrower would like flexibility = balance)
Basic structure of loan agreement
Term Sheet – short, key provision terms
Loan Agreement
Debenture – if loan is secured by fixed or floating charged
Ancillary documents – Subordination Agreement
III. Representations
o ‘Statement of fact about the borrower’s business’
1. Legal matters – e.g validly incorporated
2. Commercial matters – e.g no litigation outstanding
When are the made?
1. Date of loan agreement (signed); or
2. During the life of the loan (i.e repeated ONLY on each date of each utilisation and interest period) reps
are deemed to be repeated on those set dates! (i.e no action from borrower)
Purpose?
Protect lender – helps disclose facts before and during life of loan
During life of loan -> forces borrower to reveal information before utilisation and interest period
Drawstop – if there’s a misrepresentation, the lender is NOT obliged to lend any further money until such rep
can be given
Gives lender specific remedies on default events
Excerpts from Agreement:
19.1 Status
19.1.2 It and each of its Material Subsidiaries has the power to own its assets and carry on its business as it is
being conducted.
Obligors (i.e. borrower + guarantor) are likely to argue it is not appropriate for this reps to extend to all subsidiaries ->
only significant members of the group. This should be acceptable to the Lenders.
19.8 No default
19.8.1 No Event of Default is continuing or might reasonably be expected to result from making of any
Utilisation.
Obligors likely to argue the clause would otherwise have the effect of converting potential events of default into actual
events of default -> depriving Obligors of the benefit of any agreed grace periods. -Obligors can argue that “might” is too
wide -> objective element (“reasonably be expected”) should be acceptable to both parties
19.9 No misleading information ...
19.9.3 Nothing has occurred or been omitted from the Information Memorandum and no information has
been given or withheld that results in the information contained in the Information Memorandum
being untrue or misleading in any material respect.
Obligors -> Lenders should not be concerned if any mistake is not material in its effect.
Lenders require this clause bcs over 4 months could have passed since the Information Memorandum was originally
prepared!
19.10 No proceedings pending or threatened
No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency
which, if adversely determined, might reasonably be expected to have a Material Adverse Effect have
(to the best of its knowledge and belief having made due enquiry) been started or threatened
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