4.3 Particular Clauses in Loan Facility Agreements 101funding indemnity; (d) commitment fee; expense reimbursement; (e) increased
costs; capital adequacy indemnity; tax gross-up; (f) assignment; (g) sharing; (h)
pari passu; negative pledge; permissible liens; (i) material adverse change; Euro-
dollar disaster; illegality; (j) payment default; default interest; cross-default; (k)
governing law; submission to jurisdiction; and currency indemnity.^59
Loan facility agreement or loan agreement. There is a distinction between a
loan facility clause or agreement and a loan agreement, although those two terms
tend to be interchangeable.
If the agreement contains a loan facility clause, that clause outlines the type of
facility the lender will provide under the agreement, as well as the amount to be
made available. The term “facility” reflects the fact that the lender makes a loan
available to the borrower subject to certain conditions. The borrower may not have
any obligation to borrow.
Under a loan agreement, however, the borrower has agreed to borrow money,
and is obliged to draw down.^60
This distinction can therefore be legally relevant. A loan agreement and a loan
facility agreement can be regarded as two separate agreements. This means that,
unless the parties have agreed otherwise, default on an individual loan agreement
does not necessarily amount to breach of the loan facility agreement under the le-
gal background rules, and termination of a loan facility agreement does not mean
termination of individual loan agreements.^61
The governing law is more likely to contain specific background rules on tradi-
tional loan agreements^62 than on loan facilities.
Representations and warranties. In the context of a loan, the representations
and warranties will usually cover: (a) whether the contract is binding and enforce-
able (the company being duly incorporated; capacity of the company to enter into
the contract; power of its representatives to enter into the contract; the finance
documents being legal, valid and binding; (b) the absence of other legal matters
which might prevent the contract from being legal, valid and binding (compliance
with all applicable laws; compliance with other contractual obligations; no litiga-
tion); (c) ownership of assets and similar representations (for example, ownership
of intellectual property rights); (d) information matters (such as the correctness of
accounts, no material adverse change since the date of the last accounts, accuracy
of the information memorandum (if any) and other reports provided); and (e)
cross-references, where the purpose of the loan facility agreement is to finance a
large transaction (such as the borrower warranting that it has no reason to believe
(^59) See, for example, Agarwal VK, Best Practices in Drafting Techniques of a Loan
Agreement, UNITAR Best Practices Series in External Debt Management No 3 (2002)
pp 15–17.
(^60) Adams D, Corporate Finance: Banking and Capital Markets. LPC 2003/04. Jordans,
Bristol (2004) p 39.
(^61) German law distinguishes between Krediteröffnungsvertrag (facility agreement) and
Einzelkreditvertrag (individual loan agreement). See Diem A, op cit, § 9 numbers 9–11.
(^62) For German law, see § 607 BGB (old wording) and § 488 BGB (new wording).