It is crucial for the borrower to understand who is subject to the commitments. Often, restrictive covenants apply not only to the borrower, but also to its direct and indirect subsidiaries. While this is intended to protect the lender`s ability to repay, the borrower should ensure that transactions between the borrower and its subsidiaries are not unduly restricted, especially if such transactions do not affect the lender`s security interest in the collateral. Lenders sometimes allow certain subsidiaries to be considered subsidiaries without restriction. These subsidiaries are exempt from compliance with the restrictive clauses of the credit agreement. However, these unrestricted subsidiaries are also generally excluded from the proceeds of the loan and their financial capacity is excluded from the calculation of financial restrictive covenants. Even after the essential transaction points of the loan commitment have been finalized, the loan agreement itself remains to be negotiated. Although large portions are still taboo, the borrower should always choose his battles wisely and try to reduce the most offensive parts of the document. However, in the case of loans with significant personal property as collateral, the parties will often negotiate the standards of an “economically reasonable sale” – as provided for in Article 9-603 of the UCC. Borrowers can try to get notice of a section 9 provision up to 21 days in advance, but 10 days is a realistic expectation. Negative restrictive covenants in a loan agreement are things that the borrower waives during the term of the loan.

These remain obligations until the loan is repaid. From the borrower`s perspective, negative restrictive covenants should not prevent them from doing the things they are doing now and what they want to do in the future. From the lender`s perspective, restrictive covenants are intended to (i) establish guidelines for the borrower in the course of its business, (ii) ensure the borrower`s ability to repay its loans, and (iii) protect the lender`s priority with respect to its security in its collateral, and that the borrower does not take any action that could affect the lender`s security right in the collateral. When considering negative covenants, special attention should be paid to the interaction between different negative covenants, as an act permitted by one covenant may be prohibited by another covenant. Examples of restrictive covenants include restrictions on the incurrence of additional debts or liens, prohibitions on collateralizing the borrower`s assets, restrictions on the borrower`s ability to sell assets or make acquisitions, and restrictions on the borrower`s ability to declare dividends or make distributions to its shareholders. Default events are circumstances specified in a credit agreement, the occurrence of which gives the lender the right to appeal against the borrower. Default events are intended to alert the lender to a deteriorating situation and give the lender the opportunity to take corrective action in a timely manner. In general, the condition leading to default must remain in place if the lender declares an event of default in order to exercise any of its rights set out in the loan agreement. You can also try to limit the collateral to the top 20% or the top or 25% or higher ___% of the loan, so that the guarantor only commits to a percentage of the loan. If your spouse has separate assets, you may want to limit the assets that the lender can take over if the guarantor has to comply with the guarantee. All loan agreements require borrowers to perform a variety of actions, such as .

B the maintenance of their commercial existence, most of which should not be reprehensible. Three alliances in particular deserve special attention. Consult an insurance broker or expert as soon as possible. Lenders are known for their extensive and expensive insurance requirements. It is not uncommon for the amounts entered by the lender in the documents to be default values, regardless of the company in question. The lender could be completely excluded from coverage or limit the terms of other requirements, such as. B the length of time you must cover with business interruption insurance. Pay close attention to cross-default layouts. The loan facility being negotiated may not be the first or only loan the borrower has with that lender. While the borrower may look at both loans on a stand-alone basis, the lender often sees it differently. The provisions on cross-defects should be rejected if possible, but they may prove difficult to postpone. Particular attention should be paid to the definition section of the credit agreement and the impact that those definitions have on the restrictive covenants section.

The borrower may attempt to amend certain definitions to provide more flexibility with respect to compliance with applicable restrictive covenants. Since the consequences of a breach of an agreement are serious, the borrower should carefully read each agreement and ensure that he is able to comply with these conditions, especially with regard to the borrower`s plans for his business during the term of the loan. In the case of a syndicated (multi-lender) loan, it is important to oppose the provisions that provide for contractual rights of set-off. In general, the law only allows compensation if there is reciprocity (i.e. the same two parties owe each other money) and both bonds mature. But in a syndication with participations, only the main lender is in practice contractual with the borrower. No participant has a right to set-off unless the borrower contractually grants them one. Often, borrowers do not know the identity of all (or some) of the loan participants and therefore should not risk having a cleared account because if their custodian bank were an unknown participant. Compare this situation to a “co-loan” agreement in which each of the co-lenders is in practice direct with the borrower. There will be no point in defending oneself against the rights of set-off here.

10. Attorneys` fees: Lenders are generally willing to limit their ability to charge their attorneys` fees and expenses to reasonable fees and costs, with the exception of fees and costs they incur to enforce loan documents. Since jurors tend to prefer the little guy, the waiver of the right to a jury trial is often included in loan files. It is usually in a borrower`s interest to insist on the right to a jury trial when litigation is required. It should be noted that a distinction is made between a standard and a failure event. An event of default is an event, condition, or circumstance that gives a lender immediate rights under the loan agreement. .