4.3 Particular Clauses in Loan Facility Agreements 103narrow.^65 In minor transactions, the purpose clause may be wide: “The facility is
to be used for general corporate purposes.”
Drawdown. The agreement contains a drawdown, availability or utilisation
clause. The drawdown clause deals with the modalities of when and how the bor-
rower can actually borrow money under the loan.
Before the first drawdown, the borrower must fulfil all conditions that usually
belong to conditions precedent to closing.^66 A loan agreement may not necessarily
contain separate conditions precedent to closing, because the borrower will not re-
ceive any funds unless payment conditions have been fulfilled.^67
The drawdown clause contains payment conditions. The clause will essentially
say that (a) the lender will pay the agreed amount of money to the borrower’s ac-
count (b) at the borrower’s request (notice of drawdown),^68 (c) if the borrower has
satisfied the payment conditions (conditions precedent for payment), repeated the
representations and warranties, and is not in default.^69
A simple term loan might allow the funds to be drawn in one amount on a
specified day. More sophisticated facilities might allow the borrower to utilise the
facility in a number of tranches up to the available amount. The loan facility
agreement usually provides for minimum and maximum amounts. Revolving
credit facilities offer even more flexibility, allowing repeated utilisation and re-
payment throughout a substantial part of the term. In major transactions, the lender
will usually require the borrower to give several business days’ notice of utilisa-
tion.^70
After the drawdown, the parties are bound not only by the loan facility agree-
ment but also by a loan agreement.^71 The distinction between the loan facility
agreement and the loan agreement may influence the rights and duties of the par-
ties under the governing law.
If the lender does not make the money available to the borrower, the lender
may be held to have breached the loan facility agreement. For example, German
law gives the borrower a right to damages for delay^72 or non-performance.^73 The
lender might mitigate this risk by inserting a clause according to which the lender
has full discretion to make the money available to the borrower.
Under the terms of a loan facility agreement, the borrower may have a right but
not an obligation to draw down money. According to typical contract terms, the
lender is entitled to a commitment fee in this case.
(^65) See, for example, Clause 3 of LMA Leveraged Finance Facility Agreement.
(^66) Diem A, Akquisitionsfinanzierungen. C.H. Beck, München (2005) § 11 numbers 15–19.
(^67) See Clause 4 of the LMA Leveraged Finance Facility Agreement.
(^68) For modalities of notices under German law, see § 130 BGB.
(^69) Adams D, Corporate Finance: Banking and Capital Markets. LPC 2003/04. Jordans,
Bristol (2004) p 47.
(^70) Ibid, p 47.
(^71) See Diem A, Akquisitionsfinanzierungen. C.H. Beck, München (2005) § 11 number 7.
(^72) § 280(1) and (2) BGB in combination with § 286 BGB.
(^73) § 280(1) and (3) BGB, § 281 BGB. Diem A, op cit, § 11 number 22.