104 4 Debt
Alternatively, the borrower may have an obligation to draw down the loan
amount under the terms of the loan agreement.^74 The borrower may also have a
duty to reimburse the creditor for loss caused by breach of contract.^75 The bor-
rower can mitigate this risk by inserting a clause according to which the borrower
has no obligation to draw down money unless the borrower gives the lender notice
of drawdown.
Broken funding indemnity clause. Eurocurrency loan agreements nevertheless
tend to contain a broken funding indemnity clause. This clause means that if the
borrower fails to borrow funds under the agreement after it has given the lender
notice of its intention to do so, the lender will be entitled to reimbursement for any
losses occasioned by the need to liquidate ot redeploy the deposits it took to fund
the loan for the interest period concerned.^76
Commitment fee, expense reimbursement clause, other fees. A bank will in-
variably charge a commitment fee^77 during any commitment period regardless of
whether the borrower utilises the facility.^78
Each party bears its own costs, unless the parties agree otherwise. The borrower
normally reimburses for the lender’s external costs (such as lawyers’ fees). Typi-
cally, each party bears its own internal costs.^79
The expense reimbursement clause may provide that the borrower reimburses
the lender for the expenses incurred by the lender in negotiating and documenting
the loan or any amendments to the loan agreement, as well as any expenses that
the lender may subsequently incur in enforcing its rights against the borrower.^80
The borrower may mitigate risk by ensuring that the parties agree on caps and a
list of costs to be paid by the borrower.
For example, the costs could include even mandatory costs^81 and the costs of capital re-
quirements based on the Basel II Accord^82 and implementing legislation^83 (but not mini-
mum reserve requirements as those costs cannot be allocated to any particular credit).^84 In
syndicated loans and similar multibank loans, the borrower may mitigate this risk by agree-
ing only to pay the costs of the agent and refusing to pay the costs of other parties.^85
(^74) See Diem A, op cit, § 11 numbers 24–25.
(^75) § 280(1) and (2) BGB in combination with § 286 BGB; § 280(1) and (3) in combination
with § 281 BGB. See Diem A, op cit, § 11 numbers 26–29.
(^76) See Buchheit LC, How to Negotiate Eurocurrency Loan Agreements. Euromoney Publi-
cation, London (1995) p 59; Diem A, op cit, p 44.
(^77) In German: Bereitstellungsprovision. If the parties have not agreed otherwise, § 354
HGB and § 315 BGB will apply.
(^78) The principles of § 628(2) BGB apply under German law in the event of termination due
to an important reason.
(^79) Diem A, op cit, § 26 numbers 22–25.
(^80) See Buchheit LC, op cit, pp 106–108; Diem A, op cit, § 12 number 20.
(^81) For example, Schedule 4 of the LMA Leverage Finance Facility Agreement.
(^82) Paragraph 44 of the Basel II Accord.
(^83) In Germany, § 10a KWG.
(^84) Diem A, op cit, § 12 numbers 20–23. For German law, see §§ 10, 10a and 11 KWG.
(^85) See Buchheit LC, op cit, pp 106–108.