Archives: Negotiation

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Negotiating Covenants in a Loan Agreement

What issues have you faced most often when trying to negotiate covenants in a loan agreement? Do you find that many of your negotiations are really about the tension between maintaining appropriate limits vs. providing sufficient flexibility for the business? Do specific issues arise in setting baskets for other debt, liens and investments? Permitting acquisitions? Agreeing on appropriate levels for financial covenants?… Continue Reading

Interest Rate Swaps: What to do When the Loan Agreement Terminates

Here's the story: A lender wants to refinance a loan made by another bank, and the other bank has provided an interest rate swap to the borrower. The problem is that the swap is "out of the money" -- meaning that, in this case, the borrower would owe the bank about $20 million if the swap were terminated today. Termination of the credit facility causes the swap to terminate too, so, unless we can come up with another option, this additional $20 million will be owed on the day the loan is refinanced. What can we do?… Continue Reading

Second Liens Really are Second

With the increase in corporate bankruptcy filings over the past year, there have been some interesting bankruptcy court decisions that affect those of us on the front end in corporate lending. One recent case took up the question of whether a second lien is truly second -- and whether it is safe to expect the terms of your intercreditor agreement to be enforced.… Continue Reading

How to Avoid Lender Liability – Part 1

Back in the 80's and early 90's, there was a flurry of "lender liability" lawsuits, with lenders being sued when they exercised remedies after a default on a loan. By the mid 90's, these lawsuits appeared to have gone the way of the dinosaur -- but now they're back. What can you do to protect yourself against lender liability claims?… Continue Reading

Covering Your Cost of Funds in a Syndicated Deal

In the past year, we've seen many changes in how interest rates are calculated. Volatility in the quoted rates for LIBOR created problems for several lenders, who suddenly found that the interest rates they were earning on some of their outstanding loans didn't cover their cost of funds. In a syndicated loan, there is additional tension between the need for each of the lenders to have its own cost of funds covered, and the problem that would be created if a situation affecting only one member of the bank group could be used to drive the interest rate up on the entire credit facility.… Continue Reading

Can You Amend Your Loan Agreement Without a 100% Vote?

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. 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.… Continue Reading