4.3 Particular Clauses in Loan Facility Agreements 99Standardisation v discretion. Although each loan transaction has its unique fea-
tures, typically they will not influence the basic structure of the agreement and the
primary categories of clauses that will be included in the agreement.
The core features of the loan agreement are determined by the nature of the
loan transaction itself: the lender provides credit to the borrower who promises to
repay the credit with interest according to the terms and conditions established in
the loan agreement. For this reason, all loan agreements tend to have the same
structure and the same basic categories of clauses. They will include clauses on
conditions precedent, representations and warranties, covenants, events of default,
and dispute settlement, because the core elements of all loan transactions are simi-
lar and the fundamental risks associated with all loan transactions are identical.^54
Each lender tends to develop a model loan agreement that best addresses its
concerns about the risk of non-payment and establishes the most efficient proce-
dures for executing the transaction. The lender then seeks to have each of its bor-
rowers accept this “standard” agreement (for the benefits of standard terms, see
Volume II).
There is nevertheless diversity in the way in which clauses that belong to those
categories of clauses are drafted. Lenders usually agree to deviations from their
own “standard” clauses if they become convinced that the deviations are neces-
sary.^55
Often the discretion of the parties is constrained by the market. For example,
when securities are offered to the capital market, the expectations of investors can
dictate the terms of those securities and – in the case of securitisation and collater-
alised debt obligations – the terms of underlying agreements. The number of mar-
ket customs can thus be limited in order to ensure the efficient functioning of fi-
nancial markets.
Structure of the loan agreement. Clauses in loan agreements can be categorised
in many ways. For example, they can be categorised into the following seven
types of clauses according to the interests of the parties: (1) clauses on cash flow
(the amount of the loan, the repayment schedule, the interest rate, the disburse-
ment schedule, tax issues, and the fees associated with the loan); (2) clauses on
modalities (definitions, the interest period, notice requirements, and so forth); (3)
clauses on the management of counterparty credit risk (the purpose of the loan,
conditions precedent, representations and warranties, covenants, changed circum-
stances); (4) clauses on the management of counterparty commercial risk and
agency (in addition to other clauses: events of default, remedies, dispute resolu-
tion); (5) clauses on the management of commercial risk (prepayment, changed
circumstances) (6) information clauses (in particular: disclosure of information as
a condition precedent to closing or each drawdown, information covenants, no-
tices); and, in syndicated loans and other multi-party contracts, (7) clauses that are
necessary in multi-party contracts (the role of the agent bank, sharing).
(^54) Bradlow DD, Some lessons about the negotiating dynamics in international debt transac-
tions. In: UNITAR, Problems and Perspectives of Debt Negotiations, DFM Document
Series, Document No 9, Geneva (April 2000).
(^55) Ibid, discussing the borrower’s game plan.