Nicholas Ross-McCall, Huw Thomas

intercreditor agreement and an accounts agreement.

The principal document is the facility agreement, which will include the
following:
Representations and warranties these serve a different purpose from in a
commercial contract such as a sale and purchase agreement. Lenders are not
interested in suing for damages for breach, but rather want to force
disclosure, and allow them to call a default on breach and force borrowers to
the renegotiating table.
Covenants in classical project finance documentation these are extensive
and are designed to give a contractual vote to the banks in relation to the
basic management of the company. In terms of weight and tightness of
covenant package, borrowing base facilities range from much less restrictive
corporate-finance-style restrictions, to a package closer to a project financing
for a hybrid borrowing base/project finance deal.
Events of default the banks view events of default as the ability to be heard
in the management of the project if things go wrong, rather than an
opportunity to get their money back instantly. They force the borrower to
come to the negotiating table. Some bankers have been heard to take the
view that it is not a bad thing if at any point in time the lenders can point to
a default by way of technicality under a facility agreement, but of course
borrowers counsel will make every effort to ensure that only genuine issues
trigger an event of default.

8.2 Loan Market Association documentation

Since the publication by the Loan Market Association (LMA) in the United Kingdom
of a template English-law syndicated loan agreement for investment grade
borrowers, the time taken agreeing mechanical and standard provisions of credit
agreements has been greatly reduced. Although borrowing base facility borrowers are
unlikely to be of investment grade, LMA documentation is still used in the upstream
oil and gas financing market as a basis for negotiations.

8.3 Market flex

In a bond issue, underwriters pre-sell the bonds before they are prepared to sign the
underwriting agreement themselves. If there is a market force majeure event after the
underwriters have signed the underwriting agreement, or there is a material adverse
change in the issuers financial condition or the project, the underwriters are not
obliged to subscribe.
The bank market reaches the same end result through market flex provisions in
mandate letters. These allow changes to key financial terms should syndication prove
more difficult than expected, to ensure a successful syndication. In the reserve based
lending market, before the onset of the 2008 credit crunch, although a market flex
provision would typically have been included in mandate letters, it was often restricted
to only a right to change pricing, and then perhaps subject to a cap. Since then it has
become fairly standard for full market flex provisions to apply. As noted above, at the
time of writing club deals have largely supplanted syndicated transactions.

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