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LLM Law Outlines Corporate Bonds and Credit Agreement Outlines

Bank Loan Commitments Relationship Among Lenders Lender Default Monetary Terms Outline

Updated Bank Loan Commitments Relationship Among Lenders Lender Default Monetary Terms Notes

Corporate Bonds and Credit Agreement Outlines

Corporate Bonds and Credit Agreement

Approximately 204 pages

Corporate Bonds and Credit Agreement with Kahan Spring 2019...

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Relationship among Lenders, Lender Default

FMC Credit Agreement ss. 2.01(d), 2.03, 2.04, 3.03(a), (b), (c) 3.04(b), (f), (g), 2.16(a)(b)(d), 2.05(c), 2.11(g)

Problem Set # 2C

  1. How are different loans apportioned among Lenders? [1:04:00]

  • Kahan: Revolving Loans are made pro rata. Lenders acquire pro rata share in LofC’s per section 3.04(f). Swing Loan Lender can demand that other Lenders pay a pro rata share of any Swing Loan as specified in Sections 3.03(b) and (c).

  • Revolving Loans made ratable 2.01(d)

    • 2.01(d) “Each Revolving Loan Borrowing shall (subject to Section 2.09(d) consist of Revolving Loans of the same Type in the same Currency made on the same day by the Lenders ratably according to their respective Commitments.”

    • 1.01 "Commitment" means, “as to any Lender, (i) the Dollar amount set forth opposite its name on the signature pages hereof or (ii) if such Lender has entered into one or more Acceptances, the amount set forth for such Lender in the Register, in each case as the same may be increased or reduced as expressly provided herein (including, without limitation, pursuant to Sections 2.06, 2.15(c). 3.08 and 9.07).

  • LofC issued by Issuing Bank 3.04(b)

    • When a drawing is made issuing bank make 100% payment

    • Payments are not made pro rata

    • Upon issuance, LofC deemed assigned amongst Lenders

    • If Borrower fails to pay upon draw, other Lenders pay Issuing Bank – 3.04(h)

  1. What happens with respect to the Lenders other than the Swing Loan Lender upon the making of a Swing Loan?

  • Swing Loans made by Swing Loan Lender 2.03

    • Swing Loans are funded 100% by a bank (not pro rata)

    • 3.03(b) “The Swing Loan Lender may demand that each Lender pay such Lender's pro rata share of all or a portion of the Dollar Equivalent of the outstanding Swing Loans”

    • may demand’ may not be reapportioned, 100% funded by the Lender then Lenders would not be on the same boat

  • Payment currency? E.g.:

    • Day 1 Swing Loan Lender made $40M loan in Swiss Francs

    • Day 4 the Swing Loan Lender makes a demand other “Lender pay in Dollars to the Administrative Agent… such Lender’s pro rata share” if only 2 banks (Swing Loan Lender + Bank B) Bank B would need to pay

      • 50% of the loan at the time demand is made OR

      • 50% of the loan in Dollar Equivalent at the time demand is made?

        • If Dollar Equivalent is $50M the other bank would pay $25M

        • But if on day of demand, Dollar Equivalent is $48M?

          • $24M or still $25M?

      • This is not addressed in this section

    • Prof: 3 options for 40M SF loan to Borrower

      1. Split loan: Borrower should repay 20M Swiss Franc (+SF rate interest) to Swing Loan Lender + $24USD to Bank B (+ USD rate interest)

        • Most rational option, as each bank funded in different currency

        • But Bank B would have Base Rate; and Bank A would have SF interest rate Lenders no longer in the same boat

        • When Borrower repay, Borrower has to pay Swing Loan upon maturity date in 10 days BUT should Borrower also pay the portion converted into Base Rate Loan (which doesn’t have maturity so why need to repay)?

      2. Convert immediately

        • When Bank A make the Swiss Franc Loan, should convert loan immediately into Dollars

        • Becomes a US$50M loan + 3 days interest on the US50M

        • After 3 days, Bank B pays 50% ($25M USD) when due, Borrower would repay $25M to Bank A and $25M to Bank B Dollar interest rate

      3. Always a SF loan

        • Always remains a SF loan between the Swing Loan Lender and Borrower

        • Borrow in SF, pay SF interest rate, repay in SF (40M SF)

      • Ideally should be specified in the agreement but not provided here

To what extent does the Borrower have proportionate obligations to all lenders (same boat) and to what extent does it not?

  • All Lenders in same boat except

    • Fronting fee – only Issuing Bank gets it

    • Extra payment if ECR Loan is paid before end of Interest Period

      • If borrower repay Eurocurrency Loan early, the Bank can make demand for compensation, amount it entitled to is specified by the bank

    • Swing Loan Lender failed to demand payment

    • If SLL demands payment, payments by other Lenders become Base Rate Loans, 3.03(c), whereas original Swing Loan is …

      • Base Rate Loan Lender in Dollars v. Swing Loan Lender in Alternate Currency with different interest rate provisions

  • Whether to draft to deal with contingencies when Lenders are not on the same boat

    • Since such drafting would be very complex, may have flaws


What happens with respect to the Lenders other than the Issuing Bank upon the issuance of a Letter of Credit or the drawing under a Letter of Credit?

  • Only one bank issue the LofC, Lenders are not on the same boat unless in certain circumstances

  • 3.04(f) “Immediately upon the issuance by an Issuing Bank of a Letter of Credit in accordance with the terms and conditions of this Agreement, such Issuing Bank shall be deemed to have sold and transferred to each Lender… to the extent of such Lender's pro rata share of the Commitments…”

  • LofC is issued to a supplier Issuing Bank farm out pro rata share to other banks (note: no money change in hand)

  • Immediately upon making a LofC, the obligation under the LofC are apportioned among all lenders [c.f. swing loan: optionally and at anytime]

  • LofC: in Dolalrs and Euros remain in relevant currencies = no currency issues

  • When Borrower fails to pay (a draw)

    • 3.4(h) “In the event that any Issuing Bank makes any payment under any Letter of Credit and the applicable Borrower shall not have repaid the Dollar Equivalent of such amount to such Issuing Bank pursuant to clause (g) or any such payment by such Borrower is rescinded or set aside for any reason, such Reimbursement Obligation shall be payable on demand with interest… Issuing Bank shall promptly notify the Administrative Agent, which shall promptly notify each Lender of such failure, and each Lender shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuing Bank the amount of such Lender's pro rata share of such payment in Dollars (based upon the Dollar

    • Equivalent of such amount...

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