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LPC Law Notes Finance and Capital Markets Notes

Bond Prospectus V Facilities Agreement Notes

Updated Bond Prospectus V Facilities Agreement Notes

Finance and Capital Markets Notes

Finance and Capital Markets

Approximately 204 pages

A collection of the best Capital Markets and Loans* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Capital Markets and Loans notes available in the UK this year. This collection is...

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The following is a more accessible plain text extract of the PDF sample above, taken from our Finance and Capital Markets Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Comparison Bond Prospectus v Facilities Agreement

Bonds Bank Loan
Many lenders who can get in and out (don’t think of themselves as lenders but as investors) Few lenders
Simpler Terms Complex terms
Less onerous rules Onerous rules
Little monitoring Closely monitored
Rarely Secured Often secured
No relationships (it’s just a business relationship) Relationships (Stronger relationship with Bank)
Established Market Limited market
Large scale borrower Modest borrower
Lots of Publicity Little Publicity
TERM BONDS PROSPECTUS FACILITIES AGREEMENT

NEGATIVE PLEDGE

P.233

Generally a Less Onerous Negative Pledge

  1. typically prohibits any further “indebtedness”, so check the definition of indebtedness.

  2. Is there a “discretion”? Who exercises it? How

  3. If further indebtedness is allowed, what conditions are there?

  • Typically requires that Co. grants equivalent security to new debt and current bonds.

Effect: Bonds will rank equally with any new ones that are granted so,

Why Include the NP?

- This is important because it means the current issue will not be devaluated by a later one and will remain tradable (otherwise earlier bonds would lose value and everyone would want to purchase the new ones that ranked higher)

- the NP It is included to ensure that the issuer will not issue debt securities ranking higher than the current issue, unless the bondholders of this current issue receive identical rights.

- The NP is included to protect the current bondholders’ position with respect of future bondholders taking better security over them.

- However, watch out for the defined terms as it may include authorising taking security over the assets by certain types of organisations (e.g. like a bank)

More Onerous Negative Pledge

  1. Granting security over any future debt is prohibited. The lender is protecting itself. This is usually a wider NP and cover any indebtedness, not just ones listed in the agreement.

  • The lender’s primary aims is to make sure they are not pari passu with/subordinate to anyone.

  1. FA may contain provisions on sale and leas-back that have the effect of creating security. This is not usually covered in a bond prospectus.

CROSS ACCELERATION

&

EVENTS OF DEFAULT

- Not as strict. The bank wants to protect itself, wheras BHs do not really want early repayment

- Overall the Bond agreement is more flexible because the obligations are spread over a larger number of people and therefore the grace periods will be longer in order to deal with this extended number of BSs as compared with just paying one bank.

- the enforcement proceedings clause 9(c) is more difficult to enforce than clause 22.7(c) in the Facilities Agreement.

 Very harsh and broad in scope – sometimes another creditor may not even have taken action and the bank can still call the money in.

ENFORCEMENT/

INSOLVENCY PROCEEDINGS

Trustee may have discretion to declare an event materially prejudicial.

- The event of default is triggered in ahighly qualified clause. So, enforcement is usually harder as will usually require that all the undertaking assets or Material Subsidiary are subject to the proceedings.

NO 3rd Party discretion

The event of default clause for insolvency proceedings is less qualified. So enforcement will simply require that a member of the group or any of the assets are subject to the proceedings. Thus, the threshold is lower.
CONTINUING OBLIGATIONS There are no on-going obligations. The money has already gone out. Thus no need to repeat warranties Usually contains a MAC clause; lender is continuing to lend (e.g. in a revolving facility) and will not want to lend if circumstances change.
SUBORDINATION Usually Unsecured: BHs will rank with other unsecured creditors. Structurally subordinated to the creditors of subsidiaries Secured
TIME PERIODS FOR REMEDY

More flexible overall:

- Periods for remedy are usually longer

- Scope for beginning enforcement proceedings is narrower, e.g. against issuer or material subsidiary only.

More stringent:

- Time for remedy is shorter

- Scope for binging enforcement proceedings against members of a Co. group is wider e.g. any member of the group
DE MINIMIS INDEBTEDNESS Higher Lower
NON-PAYMENT Usually given about 14 days to pay: this is because in the case of coupons, for example, it will have to pay a lot of BHs and will be administratively complicated and time consuming thus prone to errors and mistakes. Co will want extra time for this.

Short, usually 3 days.

Co. only needs to pay one bank (the Managing Bank) or a smaller number of banks if there is no Managing Bank.
BREACH OF OTHER OBLIGATIONS Triggers are much higher because there are so many holders – you do not want to trigger one unnecessarily as it will affect so many investors. Ultimately BH’s are more concerned with...

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