Potential Event Of Default Loan Agreement

View Our Certificate
NSF

Potential Event Of Default Loan Agreement

(ii) Debt restrictions are also traditional areas in which lenders` and borrowers` advisors can reasonably disagree. Restrictions on financial debt are concentrated around the usual and long definition of financial debt. Behind almost every line of this definition lies a technical “story” – it is surprising that there are no more disputes over debt limitation rules in financial documentation. Parts of the definition almost seem to indicate the borrower`s ability to classify his liabilities so that he or she is not covered by the restrictions. One might think, for example, of the reference to “deferred payment agreements” which, in order to be considered liabilities for these purposes, generally require that one of the main reasons for the closing of the transaction be to obtain financing for the borrower. From time to time, borrowers may have several reasons for entering into payment deferral agreements – there may in fact be several main reasons for accepting these agreements: it can adapt to their supply logistics; it can help their treasury function and other internal processes or help their own counterparty risk assessments. This is the area in which borrowers may be grateful to be practically able to respect the technical details of restrictive companies in a facility agreement, allowing them to decide what was or was not one of the main reasons for inclusion in a transaction. The vast majority of credit documents relating to over-the-line loans have been concluded since the 2008 financial crisis or reflect refinancing refinancings that have taken place since then. Far from being more favourable to lenders, it is generally accepted that traditional lender protection has gradually disintegrated – z.B. a dilution of the protection of financial contracts with the emergence of Covenant Loose-lite loans – as well as an influx of rules for sponsors/borrowers who are often imported from the US market. differences between a default, default and potential default event, and in addition to “no default” certification at the time of the decline, borrowers are generally required, as a routine undertaking, to notify the agent if they are aware of a default and to inform any steps taken to remedy the situation. Although this is sometimes negotiated from the original documentation, failure to make such notifications would generally lead to a breakdown. There are no two identical situations, and the answer was, to some extent, part of the unique facts.

If such a situation were to occur, a court would consider whether a reasonable person with the same knowledge and skills as the lenders would find that an event occurred as a result of these events that had or could reasonably have a negative effect on the group`s prospects or on the ability of the company concerned to meet financial obligations. It is not a question of law, it is a matter of judgment – although determining a significant negative effect in this case would not be without risk for lenders, they might consider doing so.