128 4 Debt
For example, this is a typical obligations several clause: “Nature of bank’s obligations. The
obligations of each Bank under this Agreement are several. The failure of any Bank to carry
out its obligations under this Agreement shall not relieve the Borrower of any of its obliga-
tions under this Agreement, nor shall any Bank be responsible for the obligations of any
other Bank under this Agreement.”
Prepayment. When tranching is used, loan documentation can require prepayment
of the senior loan facility or even other loan facilites in circumstances which are
likely to increase risk. The borrower should review such provisions and their cost
implications in light of its plans for the future.^224
In order to mitigate the borrower’s risk exposure, the mandatory prepayment
events should be subject to the usual exceptions (such as minimum amounts) and
qualified by waiver periods (such as the permission of permit reinvestment in the
business within specified time periods after the sale of assets).^225
Majority/all bank consent. The borrower wants a speedy consent process when
seeking necessary consent under the facility agreement. The shortest consent
process would be approval by the agent. At the other extreme, the matter may re-
quire the consent of all banks or a qualified majority of banks (typically 2/3 by
number and/or commitment). Majority bank approval is more likely to be agree-
able to the arranger for matters which are not leverage enhancing or do not affect
security or otherwise relate to enforcement.^226
The intercreditor agreement of lenders. The intercreditor agreement of lenders
regulates the mutual rights and duties of banks. Typical terms set out: the agent’s
duties and liability; the procedure for the lenders’ decision-making; and sharing.
Agent’s duties and liability. According to the terms of the intercreditor agree-
ment, the agent will owe “fiduciary duties” or similar duties to the other banks.
The term “fiduciary duties” is used in common law countries. In civil law coun-
tries, various forms of disclosure duties and duties of loyalty serve the same pur-
pose and are functional equivalents to “fiduciary duties”.
As said above, the agent will only assume liability for its work process. It will
not assume any responsibility for the result of its work. The work process and the
duties of the agent include, for example, a duty to: inform lenders about a breach
of contract by the borrower; and organise decision-making by the lenders. The fol-
lowing clause from a fictive Syndicated Loan Agreement provides an example of
some of the agent’s core duties (a real clause would be longer and more detailed):
(^224) Ibid, p 303.
(^225) Ibid, p 303.
(^226) Ibid, p 302.