Bank Lending PDF

Bank Lending SILE PART B COURSE What we’re going to cover: 01 Introduction to corporate financing 02 Types of bank lending 03 Overview of a facility agreement...

Bank Lending SILE PART B COURSE What we’re going to cover: 01 Introduction to corporate financing 02 Types of bank lending 03 Overview of a facility agreement 04 Taking security © Allen & Overy LLP | Bank Lending ©©SILE Allen| &Bank Overy Lending LLP | Bank Lending Introduction to corporate financing Why raise finance? Companies need Working capital: Capex: finance to fund: – Working capital – Funds used in a Company’s day – Funds used to acquire, upgrade – Investments, acquisitions and to day operations and maintain physical assets capital expenditure such as property, buildings or equipment © SILE Allen |&Bank Overy Lending LLP | Bank Lending What influences a company’s choice of finance? 01 Credit quality 02 Industry of company 03 Tax 04 Available sources and market conditions 05 Need for flexibility 06 Pricing © SILE Allen |&Bank Overy Lending LLP | Bank Lending Types of financing available Equity Debt Subscriptions from private Borrowing from banks or other Private investors (e.g. venture capital) corporates (e.g. term loan) Issue of debt instruments (e.g. Offer of shares to the public or notes or bonds) Public existing shareholders (e.g., IPO) © SILE Allen |&Bank Overy Lending LLP | Bank Lending Key features 1 Characterisation 4 Returns 2 How returned or realized 5 Increase in value 3 Maturity date 6 Treatment in insolvency © SILE Allen |&Bank Overy Lending LLP | Bank Lending Types of bank lending Different types of bank lending Number Duration of Security of lenders the loan © SILE Allen |&Bank Overy Lending LLP | Bank Lending Number of lenders 1 Single lender (bilateral loan) 2 Multiple lenders (syndicated loan) © SILE Allen |&Bank Overy Lending LLP | Bank Lending Duration of the loan 1 Fixed term facility 2 Revolving facility © SILE Allen |&Bank Overy Lending LLP | Bank Lending Security 1 Secured 2 Unsecured © SILE Allen |&Bank Overy Lending LLP | Bank Lending Overview of a facility agreement Fundamental terms of a facility agreement Four broad categories of clauses 01 Mechanics: – Drawdown and conditions precedent – Repayment and prepayment 02 Costs of utilisation 03 General protection – Covenants – Events of default 04 “Boilerplate” © SILE Allen |&Bank Overy Lending LLP | Bank Lending Mechanics Drawdown and conditions precedent Repayment and prepayment ‒ Confirmation of various assumptions ‒ Repayment: ‒ Factual ‒ By specified date or dates or on demand ‒ Legal ‒ Prepayment ‒ Financial ‒ Prepayment fee usually required ‒ Satisfaction of conditionality triggers rights for the Borrower. Lenders obliged to lend if CPs satisfied © SILE Allen |&Bank Overy Lending LLP | Bank Lending Costs of utilisation 1 Interest Basic rate Margin Associated or mandatory costs rate 2 Default interest 3 Other fees © SILE Allen |&Bank Overy Lending LLP | Bank Lending Customary representations Legal Information – Status, binding obligations – No default – No conflict with other obligations – No misleading information – Power and authority – Financial statements – Validity and admissibility in evidence – No proceedings pending or threatened – Governing law and Enforcement – Authorised signatures – Deduction of tax – No filing or stamp taxes – Pari passu ranking © SILE Allen |&Bank Overy Lending LLP | Bank Lending Customary representations (cont’d) State of business (possibly extending to the Security/credit support whole company group) – Insolvency – Ranking – No breach of laws – Good title to assets, legal and beneficial ownership – Environmental Laws – Taxation – Holding and dormant companies – Security and Financial Indebtedness © SILE Allen |&Bank Overy Lending LLP | Bank Lending Covenants (undertakings) 01 Why do we have covenants? 02 Positive covenants / Negative covenants Split into: – General covenants: commercial covenants / protection of assets 03 – Financial covenants – Information covenants © SILE Allen |&Bank Overy Lending LLP | Bank Lending Customary events of default – Non-payment (with a grace period) – Financial covenants – Other obligations (including information undertakings) – Misrepresentation – Cross default/Cross acceleration – Insolvency/Insolvency Proceedings/Creditors’ Process/Judicial Management – Ownership of the Obligors – Unlawfulness – Repudiation – Moratorium on External Indebtedness – Cessation of business © SILE Allen |&Bank Overy Lending LLP | Bank Lending “Boilerplate” – Assignment/transfer of Loans – Amendments and waivers – Payment Mechanics – Set-off – Notices – Partial Invalidity – Counterparts – Governing Law – Jurisdiction – Arbitration © SILE Allen |&Bank Overy Lending LLP | Bank Lending Taking security Reasons for taking security 01 Protection in the event of the borrower’s insolvency – Enforcement of the security – Proceeds of the sale paid to the lender – If insufficient, lender will compete with the unsecured creditors for the remainder © SILE Allen |&Bank Overy Lending LLP | Bank Lending Types of security 1 Mortgage Legal mortgage Equitable mortgage 2 Charge Fixed charge Floating charge © SILE Allen |&Bank Overy Lending LLP | Bank Lending Perfecting the security 1 Registration with specialist asset registers Land: Singapore Land Authority IP: Intellectual Property Office of Singapore Ships: Maritime Port Authority of Singapore 2 Companies must register the security with ACRA Consequences of failure to register © SILE Allen |&Bank Overy Lending LLP | Bank Lending  Copyright Notice Copyright © 2023, Singapore Institute of Legal Education. All rights reserved. This video is protected by the copyright laws of Singapore. No redistribution, reproduction or editing of this video in whole or in part in any form or medium is allowed without the express written permission of the Singapore Institute of Legal Education. © SILE Allen |&Bank Overy Lending LLP | Bank Lending 0010023-0028844 SNO1: 2005337042: 2