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Events Of Default Notes

LPC Law Notes > Debt Finance Notes

This is an extract of our Events Of Default document, which we sell as part of our Debt Finance Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.

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Events of Default Events of Default ClauseExpansion on the common law remedies for breachGrace periods are only relevant where the breach is capable or remedy. 1

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Non payment of principal and/or interest Indicates poor credit situationImpacts lender's matched funding costsNB. Default interest payable on defaultShort grace periods of 2-3 business days are usual but only fornon-payment caused by technical or administrative reasons which are not the borrower's fault. Breach of financial covenants Not appropriate to have a grace periodBased on historical dateIf a grace period is appropriate, then it should be within thewording of the financial covenant clause itself Breach of other obligations Key concern = undertakings (may contain materialityqualifications/other carve outs) Can negotiate a grace period into the specific undertakingNB. Some breaches will always be serious (e.g. breach of anegative pledge) Misrepresentation Can extend to any representations made or repeatedIt is the inability of the borrower to repeat the representation atthe date it should repeat it which triggers the EoD. Qualifications: limit to only written representations or includemateriality thresholds Cross default i.e. borrower's failure to honor obligations in other loan agreements."Financial Indebtedness" in the LMA drafted widely to includemost types of borrowing - i.e. EoD can be triggered where: Borrower fails to pay FI when payment is due;Creditor of the borrower declares any FI due, due to EoD;or Creditor of the borrower suspends or cancelsoutstanding commitment due to EoD; Creditor of the borrower becomes entitled to declare FIdue to EoD.
? Borrower objections: Lenders should not be allowed to indirectly takeadvantage of stricter covenants in other Lenders' loan agreements - domino effect. To prevent this, borrower should ensure identicalundertakings in all its loan agreements.Qualifications/amendments:
? Limit to cross default EoD to financial indebtedness (include loans, bonds, hire purchase agreements but exclude trade creditors)

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