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Sidecar Loan Agreement

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While lawyers are often singled out for adding increasingly complex formulations and provisions to applicable documents, they often resolve an already existing problem that has been identified or document a commercially agreed position that happens to be more complicated and complex than the previous transaction. Comparing a loan agreement to the LMA form is perhaps a bit unfair because, although the LMA form is an extremely useful industry standard form document, the business transaction is often based on a precedent „market“ that, as described above, has expanded over time to both the practical realities of the creditor-debtor relationship and the development of documents into new forms with additional functionality. Ironically, a shorter time to do business can result in even longer documents than shorter documents, as parties tend to add additional wording (especially of an excessive nature) to make a point rather than refining some equivalent terms. The future of loan agreements probably suggests that the documents will remain in their longer form, rather than entering into contracts, in order to eliminate the fear of accidentally eliminating significant borrower flexibility that the market has been able to accept so far. However, business parties should be aware that all the words in a credit agreement are important and, therefore, agreeing on a new wording that is not carefully considered may be a riskier approach to future conflicts or disagreements over intentions, and if possible, it may sometimes be beneficial for the parties to reconsider longer terms, to try to make a concise agreement on a specific point. without necessarily losing anything. Additional credit facilities (also known as accordion) offer a borrower the opportunity to take out additional term loans or revolving loan commitments under an existing loan agreement if current and/or new lenders agree to provide them. These facilities allow the borrower to effectively access additional financing, as the additional borrowing only requires the consent of the lenders providing the financing and the management agent. The consent of the majority of the lender is not required. On the contrary, only a relatively simple change is usually required, making the additional facilities an attractive option for borrowers, especially for subsequent acquisition financing. The construction clause helps to interpret certain conditions and provisions of the credit agreement. For example, it may specify that any reference to the time refers to „London time“ to avoid clarification in a document, or that a reference to a particular „person“ includes his successors in the title.

However, as credit agreements have become more complex, the construction clause has been significantly expanded and contains a variety of additional clarifications and/or interpretative provisions covering issues such as . B what outstandings under different instruments such as „debts“ (i.e. the treatment of hedges), exchange rates and conversion rates, and some additional specifications on how certain terms such as „knowledge“ should be assessed in practice. Once the field of large-cap transactions and leading sponsors, incremental facilities (also known as accordions or additional facilities) are now an integral part of leveraged lending markets and are becoming increasingly common in the area of corporate lending. In terms of leveraged loans, the additional facilities are integrated to such an extent that of all the European transactions pursued by DebtXplained in 2015, only 1% did not contain an additional facility. The frequency with which additional facilities are included in credit agreements has led some stakeholders to request the Loan Market Association („LMA“) to include a number of optional provisions for additional facilities (the „LMA Provisions“) in their recommended form of leveraged facility agreement. Now that we`ve done that, let`s take a brief look at some aspects of incremental installations and review some key elements of the AML model language. More recently, the additional debt capacity in the large-cap market typically consists of the sum of (i) a „free and clear“ dollar amount, (ii) the amount of early repayments of previous voluntary loans not financed by reductions in long-term liabilities and standing revolvers, and (sometimes) past cash payments for loan buybacks and purchases, and (iii) unlimited debt equivalent to pro forma compliance with a maximum net leverage ratio. (often leverage on the deadline, but sometimes narrower). To the extent that the proceeds of the additional debt based on the ratio are used to finance an acquisition, the leverage test as an alternative to maximum leverage sometimes does not require an increase after additional borrowing of the leverage ratio immediately before this takeover.

For the purpose of calculating capacity on the basis of incremental measures, these additional obligations shall be considered to have been fully financed at closing and the proceeds of such additional loans shall not be included as unallocated cash in the calculation of the net leverage ratio. .