SSRN Id2816551

SYNDICATED LOAN AGREEMENTS:
DEAL-MAKING / DEAL-BREAKING CLAUSES
(TERM-END ASSESSMENT)
Module: International Corporate Finance

LL.M. - International Corporate Governance & Financial Regulation (ICG&FR)
Term: I
Essay Question: Number 1
Submitted To: Dr. Jorge Guira
Submitted By: Joy Dey
University Number: 0650850
Date of Submission: January 21st, 2008.
Marks Scored: 72 (Distinction).
Professor’s Comments: “Excellent Work. Well organised, and takes a position.

Analyses issues of clear importance. Clearly referenced and
strongly researched.”
UNIVERSITY OF WARWICK
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Syndicated Loan Agreements: Deal-Making / Deal-Breaking Clauses LL.M. (ICG&FR)
I. Introduction
An ordinary loan transaction involves a lending party (usually a bank) and the borrowing
party (an individual or commercial entity). Syndicated loans are loans or credits which are
granted by a group of banks to a single borrower1. The loan amount granted by such a group is
usually large, and also entails huge risks, due to which banks come together as a syndicate to
share the funding as well as the risk. An ordinary syndicate structure could be shown as under:
Example of a Simple Syndicate Structure: 2
XYZ Ltd. (Borrower)

US$ 250 mn.
Two-year Term Loan, signed [Date]

Loan Purpose: General Corporate
Pricing: Margin: 6 month LIBOR + 125.00 bp: commitment fee: 17.50 bp.
MANDATED MANAGER: Mandated to originate, structure and

syndicate the transaction.
BOOKRUNNER: Issues invitations to participate in the

syndication, disseminates information to
banks and informs the borrower about the
progress of the syndication.
PARTICIPANTS: Banks providing funds.
ADMINISTRATIVE AGENT: Title given to the arranger of a

syndicated transaction in the US market.
A syndicate loan agreement creates a contractual relationship between the syndicate and
the borrower under which the syndicate agrees to lend money to the borrower at pre-defined
1
Yener Altunbas, Blaise Gadanez and Alper Kara, “SYNDICATED LOANS – A Hybrid of Relationship Lending and
Publicly Traded Debt”, Palgrave Macmillan Studies in Banking and Financial Institutions, Ed.2006, page 6. Also,
Blaise Gadanecz, “The Syndicated Loan Market: Structure Development and Implications”, BIS Quarterly Review,
December 2004, page 1.
2
Altunbas, Gadanez and Kara, Ibid at page 8.
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phases and the borrower undertakes to repay the money borrowed as per agreement. The
Agreement stipulates various terms and conditions which become the basic framework on which
the rights and obligations of the parties involved are laid out. It is estimated that syndicated loans
account for one-third of all international funding.3 Thus it has come to acquire the attention of
various studies and research in order to understand the mechanics of a syndicated loan
transaction. This essay discusses the legal details of a syndicate loan agreement (hereinafter,
“Agreement”).
II. The Agreement
If the entire transaction of the syndicated loan is equated to a multi-storeyed building,

then the Agreement forms the pillars of the building, and the various clauses used in the
Agreement function as the foundation of the Agreement. A weak foundation is a foreboding of a
collapse of the entire structure. A strong, sound and well drafted loan Agreement is a pre-
requisite for a legally unshakable contract. Further, unambiguous and straight forward language
of the agreement creates a commercial relationship where rights and obligations of the parties are
unambiguous and well defined. Where intentions of the parties are not clearly and honestly
reflected in a legal document, there are chances that it would result in conflict of interest at a
later stage giving rise to litigations.
Considering the size and complexity of the transaction of a syndicated loan, Agreements
tend to be voluminous and technical. Depending on the circumstances and the preferences of the
arranger, borrower and counsels involved in the transaction, Agreements could variously differ
in form and content. Although each such Agreement would be specific to a transaction, various
provisions tend to be common in most Agreements, irrespective of jurisdiction where it is
drafted. While legal practioners tend to accommodate the intentions of their respective clients,
sometimes minor oversights could result in catastrophic consequences to the client. It is for this
reason that enormous emphasis is laid on documentation and verification, often resulting into
hundreds of pages of reviewing.
The diversity of economic structures around the world and the intricate network of
business transactions give rise to different interpretation of legal provisions. To undo this
problem, the Loan Market Association (LMA) 4 based in London has sponsored the production
of a set of 'Recommended Forms' of loan agreements (also called the 'Primary Documents').5 The
3
Please see Annex.1, Graph 1.
4
Please see Annex.2 for a note on LMA.
5
Mark Campbell, “The LMA Recommended Form of Primary Documents”, [(2000) 2 JIBFL 53, 1 February 2000].
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documents were prepared jointly by representatives of the LMA, the British Banker’s
Association (BBA), The Association of Corporate Treasurers (ACT) and several lawyers
representing leading law firms engaged in the field of syndicated loan practice. The documents
were formally endorsed by the groups representing lenders as well as borrowers.6 The relevant
Multicurrency Term Facility Agreement standard form is now being widely used for the
documentation of Eurocurrency loan agreements.7
In his book – “How to Negotiate Eurocurrency Loan Agreements”, 8 Mr. Lee C.

Buchheit,9 considered to be an authority in the field of structured finance, gives an introduction
on negotiating such Agreements. About twenty-one common clauses used in Agreements across
the world have been discussed by Buchheit. In this essay, we shall discuss some of the clauses
highlighted by Buchheit with reference to their general importance with regard to the
sustainability of the loan and in terms of the commercial relationship established by them.
Comparisons have also been drawn with Buchheit’s discussions of the clauses, and those of the
LMA template and some executed versions of Facility Agreements drafted by lawyers.
The scope of this paper is restricted to term-loans only. Although the clauses discussed in
this paper have been put in an order of importance, however it is not necessary that parties
involved in a transaction would agree with the same. Each loan transaction will be governed by
the commercial strength of the parties and their negotiating skills. Therefore, it is possible that
some clauses included in this paper may not be included at all in an Agreement. For example, in
a transaction where the borrower is in a considerably strong position, it may not want to include
the Material Adverse Change (MAC) clause, and the lender10 may agree to it, despite the fact
that the MAC clause has continued to remain a potent weapon in the hands of the lenders and
one of the most litigated provisions of an Agreement.
III. Eurocurrency Loan Agreements
Eurocurrency is a form of international market where foreign currencies are traded among
commercial banks. The word ‘euro’ is actually a misnomer and refers to currency deposited by
national governments or corporations in banks outside their home market.11 It could be Japanese
6
Ibid. (Including the LMA, BBA & ACT).
7
Loan Market Association, London (version dated November 2001).
8
Lee C. Buchheit, “How to Negotiate Eurocurrency Loan Agreements”, Euromoney Institutional Investor, 2nd
Edition, 2000.
9
Mr. Lee C. Buchheit is a partner based in the New York office of Cleary Gottlieb Steen & Hamilton LLP.
10
The term ‘lender’ has been used in this document interchangeably to denote the Arranger, Syndicate Manager and
the Syndicate as a whole.
11
Edmund M. A. Kwaw, “Towards the Creation of an International Legal Regime for the Operation of
Eurocurrency Deposits”, The International and Comparative Law Quarterly, [Vol. 43, No. 2. (April 1994), pp. 317-
346], at 317.

yen deposited in a bank in South Africa. The depositing bank, in this case, the South African
bank, would be referred to as the Eurobank. The Eurobanks further lend the money deposited
either in the same currency or in some other currency to the ultimate buyers.
In order to establish a sustainable loan transaction and a profitable commercial relationship,

lenders as well as borrowers must be conversant with their rights and obligations resulting from
the loan agreement. Therefore, it is important that they understand the purpose and implications
of the provisions of the Agreement. It is with this aim that this paper attempts to analyse some of
the most important clauses used in a syndicated loan agreement. The said clauses are listed
below in order of importance and a brief discussion of each is included to understand their
implication on both the lender and the borrower.
1. Events of Defaults Clause
The simple rule of lending is, for the lender - to get his money back, and for the borrower
- to repay the loan. As Buchheit points out “the Fundamental Lesson number 1:
Commercial Banks do not like to lose money”.12 An event of default clause is the most
common provision which finds place in almost every kind of commercial document, and
without which apparently no loan agreement could ever be executed. It gives the lender a
right to terminate the Agreement and to accelerate the loan advanced upon the happening
of any of the ‘events of default’ specified in the Agreement. A default could occur either
due to a non-payment, or due to the happening of any other specified event.
An event of default clause could include any of the following13:

i. Non payment of the interest or the principal amount on the due date;
ii. Non-satisfaction of any of the financial covenants;
iii. Misrepresentation on the part of the borrower;
iv. Cross-default;
v. Insolvency of the borrower;
vi. Insolvency proceeding against the borrower;
vii. Failure to pay any money awarded against the borrower by any court;
viii. Moratorium;
ix. Unlawfulness,
x. Repudiation;
xi. Expropriation;
12
Supra Note 8, page 41.
13
LMA standard form - Clause 23, page 43. The list is not exhaustive.

xii. Material Adverse Change;

xiii. Cessation of Business;
xiv. Acceleration of any other loan obligation of the borrower;
xv. Any other obligation of the borrower under the Agreement which the borrower
fails to fulfil.
Whereas the lenders would seek to address every conceivable event which could affect
the business of the borrower and in turn harm the loan repayments, the borrower would
attempt to limit the number of possible events which would amount to a default. Most of
the time, the borrower is given an opportunity to remedy the default within a given time,
but beyond that period the default would have occurred and further action initiated.
The key issues related to this clause are:

i. The events are clearly defined and a default claimed by the lender falls precisely
under such definition. The onus will be on the lender to establish this.
ii. An unreasonable and unjustified delay in invoking this clause may result in the
lender losing this right.
iii. Dispute may arise as to who would have the authority to declare a default, and on
what basis (test of materiality).
iv. Occurrence of events beyond the control of the borrower, like war, aggression,
natural calamity, governmental policy change, etc., may be expressly excluded.
2. Cross Default Clause
This clause is designed to protect the lender from securing its investment in the event that
the borrower has defaulted on some other debt obligation and the assets are liable to be
attached. The theory behind this clause is that the lender would not like to get left out
when every other creditor is scramming for the borrower’s assets. A cross default
operates when the borrower has defaulted on any of his other debt obligations and the
creditor thereof has become entitled to accelerate its maturities, this would automatically
constitute an event of default.14 This is similar to a Cross Acceleration clause, the only
difference being that in cross default, the default occurs as soon as a right to accelerate
has accrued to any other creditor, whether or not that other creditor decides to accelerate
his loan; whereas an actual acceleration should have taken place for the cross acceleration
clause to be triggered.
14
Supra Note 8, at 102.

As Buchheit points out in his book, the cross default clause takes care of two situations:15
a. At times of crisis, the borrower tends to deal with more aggressive creditors first,
whose payment date is due sooner than that of the lender. Eventually there
wouldn’t be much left for the lender when his time comes.
b. In a court case when the borrower’s assets are attached, some jurisdictions may
have the first come first serve rule, where whoever sues first, gets the first right of
attachment.
One of the controversies in the Cross Default clause arises with the definition of
‘indebtedness’ of the borrower. The clause could be triggered in the event that the
borrower has defaulted on any of his indebtedness, including all his trade and commercial
indebtedness. It would be in the interest of the borrower to seek an exhaustive list of
indebtedness, so that no ambiguity remains as to what kinds of indebtedness are
included.16 The borrower is also ill-placed if the lender reserves the right to accelerate if a
‘right to accelerate has accrued’ to any other mender/creditor. Instead, it would be wiser
to use the cross acceleration clause.
Other critical issues:

i. Notice of default, whether it is discretionary or mandatory.
ii. Whether any threshold default level was prescribed for the cross default to be
triggered.
iii. The lenders could decide to give a notice of default when they reasonably believe
that another lender was entitled to accelerate his loan17.
3. Negative Pledge Clause 18
“The overriding purpose of the negative pledge clause is to ensure that the borrower’s
assets will remain unencumbered and available to satisfy the claims of all general
unsecured creditors should the borrower get into financial difficulties in the future.” 19
This clause prohibits the borrower from setting up a charge on his existing assets against
any other loans it may have secured. This is an important commercial aspect of the loan
insofar as the borrower does not jeopardise the claim of the lender in case the borrower’s
15
Id. at 103.
16
Please see Appen.3 for a sample clause limiting the ‘indebtedness’.
17
Sue Wright, “Making Lenders Liable for Damage Caused by "Wrongful Acceleration" of Loans”, [Comp. Law.
2006, 27(4), 123-124], at 124
18
Please see Appen.4 for a sample clause.
19

business undergoes liquidation, and the assets have already been pledged to some other
lender.
The negative pledge covenant usually serves the following purposes: a) the obligation it
imposes on the borrower, b) the scope of this obligation and c) any exclusions necessary
to make it commercial viable,20 much of which will depend largely upon the commercial
transaction.
Typically, a negative pledge clause could restrict the borrower from:

i. issuing further shares,
ii. paying out dividends,
iii. disposing of material assets,
iv. creating other indebtedness,
v. repaying other indebtedness.
“A borrower may wish to limit the effect of these negative covenants because in practice
they may stultify its business to the detriment not only of the borrower but also
eventually the lender. Thus it may request that it be allowed to carry on in 'its ordinary
course of business' without these provisions applying; or that they only apply to material
assets; or that the lender will permit relaxations of the rule upon request.” 21
4. Material Adverse Effect/Change Clause
The LMA standard form 22 contains the provision for a material adverse change (‘MAC’
or Material Adverse Effect ‘MAE’) sub-clause under the events of default clause;
however the said clause is blank. Apparently the LMA seems to suggest that there is no
standard format for drafting this clause, and that the clause is drafted according to the
transaction and the negotiating strength of the parties involved.
The basic premise of the MAC clause is to secure a residual remedy for the lender at
times of unforeseen and unanticipated events. It is usually entered as a part of the various
representations and warranties, where the borrower certifies that no material adverse
change of his financial statements, indebtedness, legality of his business, etc. has taken
20
Copenhagen Business School, “The Negative Pledge Clause - An Investigation into the Remedies Available to the
Original Lender with Special Emphasis on the Tort of Interfering with Contractual Relations”, at page 9. Available
at: http://ep.lib.cbs.dk/download/ISBN/x656378742.pdf. Last seen 12th Jan, 2008.
21
Simon Deane, “Basic Principles Of Loan Documentation”, The University of Hong Kong, at page 163. Available
at sunzi1.lib.hku.hk/hkjo/view/14/1400142.pdf. Last seen 12th Jan, 2008.
22
Supra Note 7; at page 45, clause 23.12.

place for the period in question. The question here is who decides whether the material
change has taken place or not; and what constitutes ‘materiality’. The one key element
which is typically left entirely undefined in MAC and MAE provisions is the standard of
materiality.23
Counsels for the lenders would prefer to avoid a narrow interpretation of the MAC
clause, seeking to include any and all unknown and unplanned events. Whereas, the
tendency of the borrowers would be just the opposite, to keep the MAC as precise as
possible. For a commercially viable relationship, focus must be put on seeking to identify
issues that could be ‘materially adverse’.
A MAC clause in an Agreement entitles the lender to stop any further payment of the
loan and accelerate the loan and demand immediate repayment of previously paid
amount, on the ground that the business of the borrower has suffered a material adverse
change, which has eventually triggered the event of default.24 Some of such material
adverse change could be:
i. Decline in revenue or profitability;

ii. An acceleration of any of its debt obligations, not otherwise covered by the
cross-default or cross-acceleration clauses;
iii. A judicial proceeding against the borrower;
iv. An attachment order or similar judgement;
v. Fraud, misrepresentation or malpractice by the borrower;
vi. Loss of key employees, clients or associates;
vii. Any statutory or regulatory development having adverse effect on the
borrower’s business25;
viii. Accounting or tax irregularities,
ix. War, terrorist attack, state emergencies, etc.
23
Contract Law. Mergers and Acquisitions. Delaware Chancery Court Addresses Default Interpretation of Broadly
Written Material Adverse Effect Clauses. In re IBP, Inc. Shareholders Litigation v. Tyson Foods, Inc., No. 18373,
2001 Del. Ch. LEXIS 81 (June 15, 2001), Harvard Law Review, Vol. 115, No. 6. (Apr., 2002), pp. 1737-1744.
24
Hongze Abraham Lu, "Simulating the Value of Loan Commitment with the MAC Covenant and the Uncertain
Drawdown" (October 26, 2004). EFMA 2003 Helsinki Meetings; at page 6. Available at SSRN:
25
A recent news report claimed that the US$ 25 billion takeover of SLM Corporation (better known as Sallie Mae),
the largest provider of student loans in the United States, was called off. The buyers invoked the MAC clause,
claiming that a new law being promulgated will cut federal subsidies to student-loan providers.

MAC in Sovereign Lending:
The MAC clause finds a special reference in a loan to a sovereign entity in a

politically troubled environment. One of the biggest disadvantages of lending to a
sovereign is that the country cannot be liquidated to recover the investments as the sale
proceeds of the assets of the sovereign. Few, if any, attempts at attaching sovereign assets
in foreign countries have succeeded. In the case of a sovereign with uncertain political
future or civil unrest, one of the legal problems could be that the successor government
may deny to repay any loan under an agreement entered into by its predecessor. The
successor government, even after acknowledging any previous loans, may not accord the
same priority to the loan. Further, sovereigns are driven by incentives different from
those of a corporation, like popularity among voters, development of the country,
contingencies and crises, etc.
The MAC clause acquires special significance in such situations. A careful study
of political and social situation of the country is mandated, as well as drafting the clause
keeping in view the past performances of the government and judicial precedence in
sovereign lending. While the lender would be worried in the absence of an international
insolvency regime, the sovereign has to take care of its reputation and creditworthiness
for raising future capital, or in worse cases economic boycott, sanctions or war. These
risks may be addressed by the MAC clause and specify predetermined grounds for
legitimate withdrawal of the lender.
5. Representations & Warranties and Covenants Clause
Although not discussed by Buchheit in his book separately, representations and

warranties are the most thoroughly investigated clauses of a loan agreement because they
are crucial for both the performance of the agreement as well as in its enforcement.26
Under this clause the borrower confirms his legal and financial status at the time of
execution of the loan agreement. If disbursements are made in tranches, such
representations and warranties may be asked before each such tranch, or on a repeated
basis.
A representation is an undertaking confirming that all statements made, based on which

the agreement was entered into, were true. Covenants denote such obligations which the
borrower must undertake during the subsistence of the Agreement. Representations deal
26
10

with the condition of the borrower up to the time of signing the agreement whilst
covenants and undertakings deal with the situation after the signing when the loan is
outstanding.27
Some of the common representations included could be:

i. Status of the borrower and legal capacity to borrow;
ii. Compliance with all statutory provisions applicable to the borrower;
iii. Accuracy and veracity of financial statements and accounts;
iv. Fulfilment of any other obligation of the borrower;
v. No event of default has occurred;
vi. Any judicial or punitive action initiated against the borrower;
vii. Any liabilities or losses which were not disclosed;
viii. All written information and statements provided are true.
Covenants may contain provisions such as pari passu, reporting and disclosures on a
regular basis during the subsistence of the Agreement.
6. Pari Passu Clause
“The typical clause in a syndicated bank credit agreement is a representation and

warranty which states that 'the payment obligations of the borrower under this Credit
Agreement rank at least pari passu with all its other present and future unsecured
obligations' or words to that effect.”28 It is designed as a representation that the syndicate
loan of the lenders ranks equal to all other indebtedness of the borrower, and as a
covenant by the borrower that this ranking shall not be altered as long as the loan
Agreement persists.29
The basic purpose of this clause is that if there is an insolvency proceeding against the
borrower, the lenders loan has not been subordinated to some other indebtedness incurred
by the borrower subsequent to the signing of the Agreement. The covenant ensures that
the borrower is obligated to maintain the ranking of the syndicate loan failing which it
will be considered as an event of default. It is a fairly standard clause used both in
corporate and sovereign lending.
27
Id.
28
Philip R Wood, “Pari Passu Clauses - What Do They Mean?” (2003) 10 JIBFL 371, at 371.
29
Buchheit, Supra Note 8.
11

7. Governing Law of the Agreement
Most law jurisdictions recognize, subject to limitations, the freedom of contracting

parties to choose whatever law they wish to govern their contract.30 In practice, the
governing law of the Agreement is usually the country where the lender has its principle
place of business, or sometimes the borrower’s country of operation, depending on the
transaction. Most syndicate loan agreements these days are based either on the US Law
or the English law for their predictability and fairness. Lenders prefer to choose to apply
the law of the country with which it is most familiar and confident. When the Agreement
does not contain a provision relating the governing law, it will be open for the courts to
decide the applicable law, based on the facts and circumstances of the case, the terms and
the nature of the contract, and also such factors as – language of the contract, nationality
of the parties involved, place of execution, place of business of the parties, currency of
payment, etc.
Submission to jurisdiction
The borrower may also be required to submit itself to the jurisdiction of a particular
court, or courts of a specific jurisdiction, where all suits related to the transaction should
be initiated. This is more relevant when the lender and borrower are of different
nationalities, as is often the case with Eurocurrency loan agreements, and the lender does
not want to go all the way to the borrower’s country to initiate legal proceedings.
8. Tax Gross-up clause
The tax-gross up clause is yet another important and standard clause of loan agreements.
The basic purpose of this clause is to absolve the lender of any tax liabilities imposed by
the borrower’s government towards loan repayments. The lender would be ultimately
subjected to dual taxation, in the borrower’s country and in its own country. Considering
that a syndicate loan based on few basis points have small margins of profit for each
syndicate member, the dual tax implication could wreak havoc on the profits of the
lenders. Subjecting the lenders to new taxes may mean that it will no longer obtain the
full benefit or return which it expected to receive at the time the agreement was entered
into.
30
This view has also been confirmed by the courts, e.g. - James Miller and Partners Ltd v Whitworth Street
Estates (Manchester)Limited [1970] AC 583.
12

With the help of the tax-gross up clause, the borrower is obliged to indemnify the lenders
any increased cost of lending which might arise as a result of tax or financial regulations
in the borrower’s country.
IV. Conclusion
International syndicated lending is a hybrid of relationship lending and publicly

traded debt. It gives certain advantages like disclosure requirements, to the borrower over
a bond issue. Negotiating a syndicated loan is a function of the strength of the parties, at
the same time it reflects on the long term relationship the parties seek to maintain with
each other.
Apart from the eight clauses discussed above, there could be other clauses of even
significant proportion. For example, the increased costs clause which stipulates that the
borrower indemnifies the lender in the event that the lender incurs any costs which were
not present at the time of execution of the Agreement but have subsequently arisen due to
changes in any law or regulation, or increased compliance requirements by the lender, or
a general market instability. The lenders would most certainly not get into a transaction
where this clause is not included.
------------
13

APPENDIX
1. Graph 1:
SYNDICATED LENDING 1986-2003, GROSS SIGNINGS, $US bn 31
(of international and domestic syndicated credit facilities)
2. LOAN MARKET ASSOCIATION

The LMA was formed in December 1996 with the objective of encouraging the
development of the secondary loan market in Europe. The primary objectives were to
bring greater clarity, efficiency and liquidity to the then fledgling secondary market by
introducing recommended forms of documentation and establishing sound, widely
accepted market practices. The LMA has a membership of over 250, comprising banks,
law firms, system/information providers and other market participants. (www.loan-
market-assoc.com).
3. Cross Default Clause:

(i) This clause is similar to a ‘cross-acceleration clause’, the only difference being
that in cross default, the default occurs as soon as a right to accelerate has accrued
to any other creditor, whether or not that other creditor decides to accelerate his
loan; whereas an actual acceleration should have taken place for the cross
acceleration clause to be triggered.
31
Yener Altunbas, Blaise Gadanez and Alper Kara, “SYNDICATED LOANS – A Hybrid of Relationship Lending
and Publicly Traded Debt”, Palgrave Macmillan Studies in Banking and Financial Institutions, 2006, at page 7.
14

(ii) limiting the scope of ‘indebtedness’:

“any indebtedness of the Borrower for or in respect of the borrowed money is not
paid when due, any such indebtedness becomes due and payable prior to its
specified maturity or any creditor or creditors of the Borrower become entitled to
declare any such indebtedness due and payable prior to its specified maturity;
or……”
4. Negative Pledge Clause example:

“The Borrower shall not without the prior written consent of the Bank:
i. Pay, make or declare any dividend or other distribution in respect of any
financial year of the Borrower until the aggregate amount available for
distribution to its shareholders in respect of such financial year has been
determined and then only in an amount not exceeding [ ]% of the aggregate
amount so available for distribution;
ii. create or permit to arise or continue any encumbrance on the whole or on any
part of its present or future assets to secure any indebtedness or any guarantee,
indemnity or other assurance against financial loss in respect of any
indebtedness;
iii. make any loans, grant any credit, or give guarantee, indemnity……….;
iv. issue any further shares or alter any rights attached to its issued shares…….;
v. sell, lease, transfer or otherwise dispose of, ……..”
5. Material Adverse Effect clause example:

“Prior to [date], there shall not have occurred, in the opinion of the Bank, any
material adverse change in the Borrower’s financial condition from that reflected
in its annual report for its fiscal year ending December 31, XXXX, or in the
Borrower’s business operations and prospects”.
Courts on Materiality:
In Katz v. NVF Co.32 the court observed that a net loss of over $6 million compared with
$2 million of net income in the prior fiscal year constituted an MAE, whereas in Raskin v.
Birmingham Steel Corp.33 it was noted that though unlikely, it was possible that a 50%
decline in earnings over two consecutive quarters might not be held to constitute an
MAE.
---------------------
32
473 N.Y.S.zd 786, 788 (App. Div. 1984)
33
[1990-1991 Transfer Binder] Fed. Sec. L. Rep. (CCH) 11 95,668, at 98,131 (Del. Ch. Dec. 4, 1990)
15

BIBLIOGRAPHY
- Lee C. Buchheit, “How to Negotiate Eurocurrency Loan Agreements”, Euromoney

Institutional Investor, 2nd Edition, 2000.
- Yener Altunbas, Blaise Gadanez and Alper Kara, “SYNDICATED LOANS – A Hybrid of
Relationship Lending and Publicly Traded Debt”, Palgrave Macmillan Studies in Banking and
Financial Institutions, 2006 edition.
- Geoffrey Fuller, “Corporate Borrowing: Law & Practice” Jordan Publishing Limited, Bristol,
UK. Second Edition, 1999.
REFERENCES
- Simon Deane, “Basic Principles Of Loan Documentation”, The University of Hong Kong, at
page 163. Available at sunzi1.lib.hku.hk/hkjo/view/14/1400142.pdf. Last seen 12th Jan, 2008.
- Blaise Gadanecz, “The Syndicated Loan Market: Structure Development and Implications”,
BIS Quarterly Review, December 2004.
- Mark Campbell, “The LMA Recommended Form of Primary Documents”, [(2000) 2 JIBFL
53, 1 February 2000].
- Edmund M. A. Kwaw, “Towards the Creation of an International Legal Regime for the
Operation of Eurocurrency Deposits”, The International and Comparative Law Quarterly,
[Vol. 43, No. 2. (April 1994), pp. 317-346],
- Sue Wright, “Making Lenders Liable for Damage Caused by "Wrongful Acceleration" of
Loans”, [Comp. Law. 2006, 27(4), 123-124], at 124.
- Copenhagen Business School, “The Negative Pledge Clause - An Investigation into the
Remedies Available to the Original Lender with Special Emphasis on the Tort of Interfering
with Contractual Relations”, at page 9. Available at:
http://ep.lib.cbs.dk/download/ISBN/x656378742.pdf. Last seen 12th Jan, 2008.
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16

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17

Market: A Mortality Analysis” NYU Stern School of Business, New York University,
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SYNDICATED LOAN AGREEMENTS:

DEAL-MAKING / DEAL-BREAKING CLAUSES

Module: International Corporate Finance

Essay Question: Number 1

Submitted To: Dr. Jorge Guira

Submitted By: Joy Dey

University Number: 0650850

Date of Submission: January 21st, 2008.

Marks Scored: 72 (Distinction).

Professor’s Comments: “Excellent Work. Well organised, and takes a position.

Example of a Simple Syndicate Structure: 2

XYZ Ltd. (Borrower)

Two-year Term Loan, signed [Date]

MANDATED MANAGER: Mandated to originate, structure and

BOOKRUNNER: Issues invitations to participate in the

PARTICIPANTS: Banks providing funds.

ADMINISTRATIVE AGENT: Title given to the arranger of a

II. The Agreement

If the entire transaction of the syndicated loan is equated to a multi-storeyed building,

Electronic copy available at: https://ssrn.com/abstract=2816551

In his book – “How to Negotiate Eurocurrency Loan Agreements”, 8 Mr. Lee C.

III. Eurocurrency Loan Agreements

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In order to establish a sustainable loan transaction and a profitable commercial relationship,

1. Events of Defaults Clause

An event of default clause could include any of the following13:

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xii. Material Adverse Change;

The key issues related to this clause are:

2. Cross Default Clause

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Other critical issues:

3. Negative Pledge Clause 18

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Typically, a negative pledge clause could restrict the borrower from:

4. Material Adverse Effect/Change Clause

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i. Decline in revenue or profitability;

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MAC in Sovereign Lending:

The MAC clause finds a special reference in a loan to a sovereign entity in a

5. Representations & Warranties and Covenants Clause

Although not discussed by Buchheit in his book separately, representations and

A representation is an undertaking confirming that all statements made, based on which

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Some of the common representations included could be:

6. Pari Passu Clause

“The typical clause in a syndicated bank credit agreement is a representation and

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7. Governing Law of the Agreement

Most law jurisdictions recognize, subject to limitations, the freedom of contracting

8. Tax Gross-up clause

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International syndicated lending is a hybrid of relationship lending and publicly

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2. LOAN MARKET ASSOCIATION

3. Cross Default Clause:

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(ii) limiting the scope of ‘indebtedness’:

4. Negative Pledge Clause example:

5. Material Adverse Effect clause example:

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- Lee C. Buchheit, “How to Negotiate Eurocurrency Loan Agreements”, Euromoney