Types of loan facilities and the LMA Amy Connell iSeminars

Types of loan facilities and the LMA Types of facilities Committed and uncommitted Revolving and term Single currency and multi-currency Letters of credit Swinglines Evergreen and extendible facilities Loan Market Association What is it? What are its aims? What does it produce?

Committed and uncommitted facilities Committed. Lender is obliged to lend for agreed period at borrower's request, provided conditions precedent are satisfied. It will be repaid at final maturity, or earlier if an event of default. Uncommitted. Lender has discretion to lend and can call for repayment on demand. Uncommon in loan markets.

Revolving credit and term loan facilities Revolving credit facilities. Borrower can borrow, repay and re-borrow during commitment period up to a specified maximum amount. Term loan facilities. Loan for a specified term where repayment is made in accordance with a schedule. Prepayments cannot be re-borrowed.

Differences between revolving credit and term loan facilities Availability Repayment Prepayments Fees Conditions precedent Maturities Table available from this webcast

Single and multi-currency facilities Single currency. Facility available for drawing in one currency only. Multi-currency. Facility calculated by reference to a base currency, but available for drawing in other approved currencies. Revolving credit facilities: different loans can be drawn in different currencies. Term loan facilities: currency can switch at end of each interest period. Calculation always by reference to base currency. Balancing payment may be necessary.

Letter of credit facilities Lender issues letters of credit, guarantees or similar at borrower's request up to a specified maximum amount. Borrower provides a counter-indemnity to lender. Lender's liability is reduced by cancellation or expiry of letter of credit or by provision of cash cover by borrower. Can be fronted or syndicated.

Structure of a letter of credit facility Bank(s) LC facility LC Counter-indemnity Borrower Beneficiary Debt facility or like

Swingline facilities Short term (7/10 day) standby facility providing backstop support to a CP programme US dollars or euro Available on day of request US$ swinglines: interest calculated by reference to higher of prime rate and Federal Funds plus a percentage rate per annum Euro swinglines: interest charged at reference rate supplied by Reference Banks as overnight rate for Euro deposits, or EONIA Sub-limit within a revolving credit facility

Other variations Evergreen and extendible facilities 364 day facilities Term out options Tranches can be of different types – e.g. two revolving credit tranches with a letter of credit option and a term loan in the same facility agreement

What is the LMA? Trade association of banks which participate in the syndicated loans market Sister associations Loans Syndications and Trading Association of New York (LSTA) Asia Pacific Loan Market Association (APLMA) British Bankers' Association: retail and bilateral loans

What are the LMA’s aims? To promote a more structured and liquid loan market Standardise and simplify sale of loan assets Establish a market for settlement procedures Establish codes of practice for market activity Establish a loan valuation mechanism Standardisation of trading documentation, primary documentation and practices. Improves liquidity, benefiting banks and borrowers

LMA documentation Available to members on the LMA website (www.loan-market-assoc.com) Primary and secondary documentation Credit agreements are mainly suitable for investment grade, English-incorporated borrowers borrowing unsecured (but with guarantors)

LMA primary documentation Standard credit agreements (primary agreements) with options Term only, revolver only or term and revolver, with swingline and letter of credit options Single currency and multicurrency versions Leveraged credit agreement French law credit agreement and guide to Islamic finance User guides for many LMA agreements Agency practices paper Term sheets: investment grade and leveraged Mandate letters: underwritten and best efforts Confidentiality letter Mandatory costs recommendation Grey market guidelines

LMA credit agreements Plain English style Standardisation of language for mechanical and non-controversial clauses Variable language for others: reps and warranties, covenants, events of default and transfer LMA credit agreement approved by BBA and ACT A&O "standard" credit agreements are LMA-compliant. Any variations tend to be lender-friendly

Secondary market documentation Wide range of secondary market documents: Secondary debt trading documentation: par and distressed debt versions User guides: par and distressed debt versions

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