One question we hear a lot these days is whether a syndicated loan agreement can be amended to do certain things without consent of all of the lenders.
Several kinds of changes that may be made to a loan agreement, such as reducing the principal amount, decreasing the interest rate, postponing payment dates and the like, typically will require all of the lenders affected by the change to approve. With more borrowers in financial trouble, it has become increasingly important – and sometimes necessary for the borrower’s survival – to get amendments passed quickly. But it can be difficult, if not impossible, to get all of the lenders to agree.
This is part one of a series of posts about what to do when this issue comes up.
When the borrower asks for relief on some of its obligations, and the agent and majority lenders are willing to agree to what the borrower has requested, in many deals there will be strong incentive to take a narrow view of the other lenders’ voting rights in order to get the amendment passed. Agents are analyzing amendment provisions very carefully to determine precisely what is and is not required in terms of lender voting. If there are ways to get the amendment passed without triggering the other lenders’ voting rights, then that can end up being the desired course.
For example, we know we can’t extend an interest payment date without a 100% vote, but there is no such prohibition on amending events of default. So, the agent and majority lenders may start thinking about whether they can lengthen the cure period for payment defaults by a few days, which could have the effect of permitting the borrower to pay later without changing the date the payment is due. This type of amendment would have other consequences, of course, and it may not be a good idea for a number of reasons. Whether changes like this can even be considered will depend on the circumstances, and on the terms of the loan agreement.
In any event, these situations call for some clever thinking on the part of the agent and its counsel. And they call for careful consideration of how the non-consenting lenders will view the amendment. Elevating form over substance (i.e. “we know we can’t amend section 2.04 without consent, so we’ll add a new section 2.05”) is likely to result in objections from the non-consenting lenders – and rightfully so. Finding alternative types of amendments that can properly be made, and other substantive provisions to amend, is a safer course.