Bank Loan Commitments Coomitment Fees Revolving Loans Monetary Terms - Corporate Bonds and Credit Agreement

C. Bank Loan Commitments, Types and Structure of Loans

Commitment and Fees; Revolving Loans

FMC Credit Agreement

Problem Set # 2A

Commitment and Fees

[FMC Credit Agreement, Section 2.01, 2.03, 2.04, 2.05(a), (b), 2.06(a)]

1. What types of loans or other extensions of credit are the Lenders committing to make? What is the amount of Total Commitments?

• Kahan: Revolving Loans, Swing Loans and Letters of Credit. Total Commitment is $1.5 billion.

• Amount of Total Commitment

  • $1.5Billion

• Facilities

  1. Revolving loan

     • company can borrow and repay whenever it wants

     • used by companies to borrow when it needs

  2. Swing loan

  3. Letters of credit

     • company wants to buy something, seller ask the bank for a letter of credit, stating that once seller deliver the goods to the company, if the company doesn’t pay, the bank would pay

     • the anticipation is that the company would pay - money will probably never change hand – but act as an extra protection for the seller

     • not a loan, but a reimbursement

     • Flow of money: bank pays to seller; company pays the bank (reimburse)

2. What fees do the Borrowers pay with respect to the various types of loans or other extensions of credit? Do these fees change if and when loans are made? When and to whom are these fees paid?

   • Kahan: The Facility Fee is payable to the Administrative Agent on account of the Lenders. The aggregate amount is the Applicable Percentage times the Total Commitment. The fee will not change as amounts are borrowed. The Applicable Percentage varies with the credit rating. The Letter of Credit commission is payable to the Administrative Agent on account of the Lenders. The aggregate amount is the Available Amount times the (Applicable Margin minus the Applicable Percentage). Available Amount is the maximum amount available to be drawn under a LofC. The Applicable Margin also varies with the cred it rating. The Letter of Credit fronting fee is paid to the Issuing Bank at a rate of 15 basis point of the Available Amount. All fees are generally payable quarterly

   • Facility Fee (2.05(a))

     • “The U.S. Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee on the average daily amount (whether used or unused) of such Lender's Commitment from the Effective Date (in the case of each Lender), and from the effective date specified in the Acceptance pursuant to which it became a Lender (in the case of each other Lender), until the Termination Date of such Lender, payable in Dollars in arrears on each Quarterly Date during the term of such Lender's Commitment, and on the Termination Date of such Lender, at a rate per annum equal to the Applicable Percentage in effect from time to time for facility fees.”

     • Function of Commitment

       • Company is paying facility fee so that money would be ready to be delivered to the company on company’s demand – or the bank may be able to refuse

       • If paying for fee for the bank to give you money demand, fee should only be charged on the unused portion of the commitment and not “whether used or unused”

         • facility fee is used on the used portion as well, even though economically speaking there should be no facility fee

         • usually only on ’unused’ but here, used = already delivered = only interest and not fee non-correspondent between economic and legal purpose (can do so, but need to be careful)

     • Formula and Applicable Percentage

       • At a rate per annum equal to the Applicable Percentage in effect from time to time for facility fees

       • Multiply total commitment by applicable percentage (defined in 1.01)

         • Credit rating : Facility Fee (applicable percentage) Table

         • Level 1 (A/A2 or higher) 0.08%

         • Level 2 (A-/A3) 0.1%

         • Level 3 (BBB+/ Baa1) 0.15%

         • Level 4 (BBB/Baa2) 0.2%

         • Level 5 (Lower than Level 4) 0.25%

         • As credit rating goes down, facility fee goes up

         • Rationale: risk to the lender by standing ready to lend company money is a function of how creditworthy are you

       • “On account of such Lender’s Commitment” Each lender gets Lender’s Commitment x applicable percentage all lender’s commitment together = total commitment (company need not know, as they only pay total sum to the admin agent, who distribute according to each lender’s commitment)

     • Why, when and to whom

       • To Whom: Paid by U.S. Borrower to the Administrative Agent (similar to a representative of the group of banks – to receive payment and distribute it to the accounts of each lenders)

       • When: on each Quarterly Date during the term of such Lender’s Commitment. Payable in Dollars in arrears on each Quarterly - i.e. on account of the quarter that has just ended

   • Letter of credit compensation 2.05(b) [01:09]

     • Available Amount x (Applicable Margin – Applicable Percentage)

       • Available Amount

         • “… on such Lender's pro rata share of the average daily aggregate Available Amount of

           • (A) all Standby Letters of Credit outstanding from time to time and

           • (B) all Documentary Letters of Credit outstanding from time to time, in each case at the Applicable Margin (minus the Applicable Percentage) in effect from time to time for Eurocurrency Rate Loans”

         • Max amount available to be drawn by the seller, when the letter of credit is issued

         • Letter of Credit issued by one bank, but all other banks would be liable

       • Times Applicable Margin

         • Depend on the definition of the credit agreement – based on credit rating

         • Use Eurocurrency Rate (as provided in s.2.05(b))

       • Minus Applicable Percentage

         • Rationale for deducting: already paid facility fee on both used and unused commitment need not pay twice

         • [But, if the facility fee is only paid on unused commitment need not deduct applicable percentage]

     • Why, when and to whom?

       • (i) U.S. Borrower to pay to Administrative Agent

       • When: in arrears quarterly on each Quarterly Date and on the Termination Date of such Lender, commencing on the first Quarterly Date after the date hereof

   • Fronting Fee 2.05(b)(ii) - Not related to credit rating – only paid to 1 bank (not pro rata)

     • Only the issuing bank gets the fee (other banks have no interest in fronting fee – not all banks are on the same boat here, unlike (i)).

     • (ii) The U.S. Borrower agrees to pay to each Issuing Bank, for its own account

     • (x) a fronting fee with respect to each Letter of Credit issued by such Issuing Bank, and

       • payable quarterly in arrears on each Quarterly Date during which such Issuing Bank has acted in such capacity, and on the scheduled Termination Date of such Issuing Bank (if such Issuing Bank acted in such capacity up to such date),

       • in an amount equal to the product of fifteen (15) basis points per annum of the average daily Available Amount of such Letter of Credit multiplied by the actual number of days such Letter of Credit was outstanding in such period, divided by 360, as applicable, which amount shall be payable in Dollars and calculated based on the Dollar Equivalent of any amount otherwise calculated in Euros on the date when such amount is payable,

     • (y) such customary fees and charges in connection with the issuance or administration of each Letter of Credit as may be agreed in writing between the U.S. Borrower and such Issuing Bank from time to time.

   • 2.05(c), (d) defaulting lender fees, and other fees

3. Why would the Borrower ever want to reduce the Commitment? How is a reduction effected?

   • Kahan: A reduction in commitments reduces the facility fee.

   • Why: Borrower may not need to borrow that much money less Commitment would reduce the facility fees

   • How: When total commitment reduce, all lender’s commitment goes down pro rata all lenders are in the same boat

   • 2.06(a)(i) Commitment Reductions

     • The Commitment of each Lender shall be automatically reduced to zero on the Termination Date of such Lender.

     • In addition, the U.S. Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that…”

Revolving Loans

Section 2.01, 2.07(a), (e), 2.08(a)(i) and (iii), 2.10, 2.11(a)-(c), 2.14, 3.01

4. How does Borrower obtain funds under the revolving loan facility?

   • Kahan: Notice must be provided under section 3.01. Notice requirements differ with the type of loan.

   • Notice - 3.01(a) Making the Revolving Loan

     • “Each Revolving Loan Borrowing shall be made on notice, given not later than

       • (x) 12:00 noon (New York City time) on the third Business Day prior to the date of Eurocurrency Rate Loan Borrowing, and

       • (y) 11:00 A.M. (New York City time) on the day of a Base Rate Loan Borrowing…”

     • Eurocurrency Rate Loans

       • How long?

       • What currencies?

     • Base Rate Loans

       • How long?

       • What currencies?

     • 3.01 Content of the Notice

       • (i) date of such Revolving Loan Borrowing (which shall be a Business Day),

       • (ii) Currency and Type of Revolving Loan comprising such Revolving Loan Borrowing,

       • (iii) aggregate amount of such Revolving Loan Borrowing,

       • (iv) in the case of a Revolving Loan Borrowing comprised of Eurocurrency Rate Loans, the Interest Period for each such Revolving Loan, and

         • Difference between Base Rate and Eurocurrency Rate Loan:

           • Euro have interest period

           • Base rate doesn’t have interest period

       • (v) the name of the Borrower (which shall be the U.S. Borrower or a Euro Borrower).

5. In what Types and currencies can a Borrower obtain a revolving loan?

• Q5,6 Kahan: Base Rate Loans are in dollar; Eurocurrency Rate Loans in euro or dollars; the US Borrower can only borrow in dollars

  • 2 types: Dollar Revolving Loan; Euro Revolving Loan

  • In what currency can the loan be made

    • Base Rate loan Dollars

      • 1.01 means a Loan denominated in ...