2014 Coursera Partners' Conference

Define At Least Two Common Credit Agreement Provisions

This part of the debt market, perhaps more than anyone else, is based on relationships. Direct lenders participating in club agreements tend to negotiate repeatedly with the same private equity sponsors (as owners of their borrowers) and credit partners, and often cite different degrees of familiarity and trust with these counterparties. These relationships have many advantages, which can include increased deal flow, transparency, speed and security during execution. Perhaps the most important benefit, which is often discussed in the sector, is that these relationships will prevent the parties in these loans from carrying out the types of forced transactions that are more common in syndicated credit markets and bond markets. Without neglecting the power of these relationships, this article will take a critical look at the most common contractual rights between the parties. Credit contracts for individuals vary depending on the type of credit issued to the customer. Customers can apply for credit cards, private loans, mortgages and revolving credit accounts. Each type of credit product has its own industry credit contract standards. In many cases, the terms of a credit contract for a retail credit product are made available to the borrower in his or her credit application. Therefore, the application for credit can also be used as a credit contract. Institutional credit transactions also include revolving and non-renewable credit options. However, they are much more complicated than retail agreements.

They may also include the issuance of bonds or a credit consortium when several lenders invest in a structured credit product. For any lender that is not the necessary part of a vote on the necessary lenders, the strength or relative weakness of so-called “sacred rights” – those few categories of changes to credit documents that require the agreement of all lenders or lenders that are adversely affected – are particularly important, as they are the last line of defence against transactions that can be carried out by the lenders borrower without the consent of minority lenders. The Loan Syndications and Trading Association (LSTA) loan agreement defines the sacred rights market base, which can be summarized to protect the right of minority lenders to benefit from the main economic conditions of their loans (including principal, interest rate, date of payment, proportional share and relative position within the cascade) and voting rights they obtain at closing. A common point of discretion of officers, which often serves as a signal to others, is the officer`s ability to unilaterally exercise rights and remedies in the event of a delay. While the agent is still required to exercise rights and remedies when specifically asked to do so by Required Lenders, we found that in 63% of transactions, the agent has the right to exercise rights and remedies without such a statement. Where appropriate, this right generally extends to the range of remedial measures, from the collection of late interest to termination of liabilities, acceleration and locking of security.

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