1. What is the purpose of a term sheet? Does it bind the parties?
    It is a document that sets out the main terms of the facility agreement and is used by the bank's solicitors as a guide to drafting the definitive facility agreement.

    • It is capable of binding the parties (and usually does on a couple of issues) although it is primarily an
    • indicator of agreement rather than contractually binding.
  2. Put the following steps in the order they would be carried out in a band lending transaction:

    negotiation and signing of facility agreement - financial due diligence - first draft of facility agreement and legal due diligence - preparation and signing of term sheet.
    • 1. The bank commences "financial" due diligence on the borrower.
    • 2. The Term Sheet is prepared by the bank and signed by the borrower.
    • 3. The bank instructs solicitors to prepare a first draft of the facility agreement and to carry out "legal" due diligence.
    • 4. The facility agreement is negotiated and signed.
  3. Name two provisions in a term sheet that are likely to be expressed to be legally binding
    • 1. An obligation on the borrower to pay the bank's reasonable costs and expenses incurred in connection with the lending proposal, whether or not the borrower ever utilises the facility.
    • 2. An obligation on the bank to treat as confidential any information that it has in respect of the borrower, its business and financial condition and the circumstances surrounding the facility.
  4. Who is most likely to be liable to be responsible for, the satisfaction of and completion of, conditions precedent?
    The borrower and the borrower's solicitors
  5. Who normally drafts the conditions precedent in a term facility?
    The bank's solicitors.

    The bank's solicitor will draft within the facility agreement the list of matters with which the bank must be satisfied before lending.

    • It is then up to the borrower and its solicitors to satisfy the bank accordingly.It is quite common for the bank's solicitor to prepare some of the condition precedent documents by which the borrower
    • will authorize the transaction (for example, board minutes), to ensure that the bank will be able to enforce the facility agreement and related documents.
  6. A facility agreement for a term or revolving credit facility will contain conditions
    precedent. From the bank's perspective, the agreement should be drafted so that the conditions precedent must be satisfied before_______?
    The utilisation of the facility by the borrower.

    Note that, once signed, the agreement will bind but there is no automatic right to borrow. However, the bank will be able to monitor the borrower in accordance with the terms of the facility agreement and to enforce any obligations of the borrower to pay fees, costs and expenses, even if the facility is never utilised.
  7. The difference between a bilateral facility and a syndicated facility is that a bilateral facility is made available by one bank to one or more borrowers, whereas a syndicated facility is made available by a
    number of banks to one or more borrowers. (Please ignore thepossibility of an immediate asset sale in your answer.)

    True or false?

    The number of borrowers able to utilise a facility is irrelevant to whether it is a bilateral or a syndicated facility. This is determined by the number of banks involved.
  8. Name 4 documents that are likely to contain provisions protecting the Arranger from any liability
    to syndicate banks in relation to information it provides in the course of putting together the transaction.

    Name 1 document that will not
    • 1. The mandate letter - The Mandate Letter will require the borrower to confirm its responsibility for the information it provides to the Arranger and to indemnify the Arranger in relation to any losses suffered by the Arranger in connection with that information.
    • 2. The facility agreement
    • 3. The information memorandum - Although the Arranger will assist the borrower in putting together the Information Memorandum which is used to attract banks into the syndicate, the Arranger will insist on disclaimers in the Information Memorandum to the effect that the document is the responsibility of the borrower and that the Arranger has not independently verified its
    • contents. It will also state that the Information Memorandum is not a recommendation by the Arranger and that banks must rely on their own credit analysis of the borrower when deciding whether or not to join the syndicate. The efficacy of such a disclaimer has been confirmed in
    • the CA 2006 and a recent case, IFE Funds SA v Goldman Sachs International [2006] EWHC 2887 (Comm). The judge held that a disclaimer of this kind would only be overridden in very limited circumstances given that the banks to whom such a disclaimer is directed are sophisticated investors and have access to legal advice.
    • 4. The credit agreement- will contain provisions confirming that the Arranger is not
    • responsible for the information provided by the borrower and that the banks are responsible for their own credit analysis.

    • 1 that doesn't:
    • 1. The fees letter - A Fees Letter will set out the details of the Arranger's (and sometimes
    • the Agent's) fee, payable by the borrower. The letter is often confidential between the Arranger (and the Agent where relevant) and the borrower
  9. In sydications is the obligation of each bank to lend 'several' or 'joint and several'.

    What does this mean?
    In syndications, the obligation of each bank to lend is several (not joint and several).

    This means that banks are not obliged to make up any shortfall caused by the failure of any other syndicate member to lend, although they remain obliged to lend their own commitment.

    The agent bank does not guarantee that a bank will lend.
  10. Name a major responsibility of the Agent in a syndicated loan
    The Agent will be responsible for collecting all payments due from the borrower under the credit agreement and forwarding each bank's share to it.
  11. Should there be a clause in the facility agreement entitling the agent to resign?
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