Representations And Warranties Conditions To Lending Outline

03. Representations and Warranties, Conditions to Lending

Overview

• Reps and Warranties

• MACs and Materiality

• Structure of Covenants

• Information Rights and Default Notices

• Merger and Asset Sale Covenant

Representation and warranties: claim of something as it is existing now

• When do reps have to be true as of?

• What is function of reps?

• Conditions to closing the contract: all reps have to be true on the closing date, like a closing checklist

• True in future points of time

• FMC 4.02 Conditions Precedent to Each Revolving Loan Borrowing, Swing Loan Borrowing and Letter of Credit Issuance.

  • “The obligation of each Lender to make a Loan… on the occasion of each Borrowing (including the initial Borrowing), and the right of the Borrowers to request a Swing Loan Borrowing or the issuance of a Letter of Credit, shall be subject to the further conditions precedent that:

  • (b)(i) The representations and warranties contained in Article V (Representations and Warranties) (except the Excluded Representations) are correct in all material respects on and as of the date of such Borrowing or issuance, before and after giving effect to such Borrowing or issuance and to the application of the proceeds therefrom, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a date other than the date of such Borrowing or issuance, which are true and correct as of such earlier date”

• Borrower can no longer borrow

Material Adverse Change versus Material Adverse Effect

• Definition of “Material Adverse Effect” means an effect that results in or causes, or could reasonably be expected to cause, a Material Adverse Change

  • Doesn’t have to actually result, only need to be a reasonably expected cause that there would be a change

• “Material Adverse Change”

Compare:

1. events that, in the aggregate, have had a Material Adverse Effect [5.04];

   • 5.04 “Since December 31,2010, there has been no Material Adverse Change and there have been no events or developments that, in the aggregate, have had a Material Adverse Effect.”

2. events that, in the aggregate, could reasonably be expected to have a Material Adverse Effect [5.05];

   • 5.05 “there are no pending or, to the knowledge of the U.S. Borrower, threatened actions, investigations or proceedings… that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect”

3. events that, in the aggregate, would reasonably be expected to have a Material Adverse Effect [5.10, 5.11];

4. events that are reasonably expected to occur that would reasonably be expected to result in a Material Adverse Effect [5.09].

   • 5.09 “Event has occurred or is reasonably expected to occur with respect to any Plan that has resulted or would reasonably be expected to result in a Material Adverse Effect.”

So 5.09 includes

• A reasonable expectation that an event 1 would occur [but has not yet]

• Which event 1 [if it in fact occurs] would be reasonable expected to generate an effect 2 [but may also not generate the effect]

• Which effect 2 [if it is in fact generated] could be reasonably expected to result in a change 3 [but may also not result in a change]

• Which change 3 [if it is in fact the result] is materially adverse as to…

• Material Adverse Effect: reasonably be expected… reasonably… reasonably expected… In practice, court would treat all as one layer of expectation

• Material = substantial likelihood that reasonable investor would change decision

• ‘Material Adverse Effect’ means a material adverse change in any of

  • (a) the business, condition (financial or otherwise), operations or properties of the U.S. Borrower and its Subsidiaries taken as a whole,

  • (b) the legality, validity or enforceability of any Loan Document,

  • (c) the ability of the Borrowers to repay the Obligations or to perform their respective obligations under the Loan Documents or

  • (d) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents”

• Issues with this clause:

  1. Material adverse change as to whom

     • (a): business etc of US...

Buy the full version of these notes or essay plans and more in our Corporate Bonds and Credit Agreement Outlines.