BDF3
Syndicated Facilities: Utilisation, Representations, Undertakings, and Default
Representations (and warranties)
A bank will want to lend only if it is happy with the ‘status quo’ of a borrower.
ª A facility agreement will therefore contain STATEMENTS which the bank requires the BORROWER TO
MAKE about various matters.
ª These REPRESENTATIONS (also referred to as ‘representations and warranties’) are made on signing the
facility agreement and usually repeated periodically thereafter
DEFINITION ® Representations and Warranties are statements of facts made by the borrower (and
sometimes by their guarantors) regarding information that is material to the Facility
Agreement.
® The borrower is being asked to put its money where its mouth is e.g. if borrower has said it is
company incorporated in England and Wales, and lender puts that rep in the FA, the borrower
will need to represent that it is infact a company incorporated in England and Wales
PURPOSE ® Reasons to include representations in a facility agreement include:
ü To elicit information (as part of the due diligence process) – i.e. provide full disclosure of
facts whilst the loan is being negotiated
ü To provide a ‘drawstop’ (money may not be borrowed) if they are untrue: Once the FA
has been executed, the representations will allow for a draw-stop if they subsequently
prove to have been untrue – i.e. bank doesn’t have to lend any more.
ü To allow the bank to call a default: once the money has been lent, the bank will be able
to call a default if the representations turn out to be untrue
Examples of COMMON representations
Legal ® RELATE TO THE VALIDITY OF THE BORROWER, ANY GUARANTOR AND THE LOAN
Representations DOCUMENTATION.
Þ Status:
§ The borrower must state that its duly incorporated under the laws of its ‘original
jurisdiction’ and that it has power to own its assets and carry on its business.
Þ Binding obligations:
§ B must confirm that the obligations it undertakes in the FA are legal, valid, binding and
enforceable.
Þ Non-Conflict:
§ B must usually state that entering into the FA will not conflict with any laws or
regulations, their constitutional documents, or any other agreement or instrument to
which they are party.
o If entering into the FA in breach of another contract, the other party to that
contract can sue the BANK in tort for “procuring a breach of contractual relations”.
o The representation that there is no conflict with other agreements should protect
the bank, since the tort requires the bank to act with knowledge or indifference to
any conflict.
Þ Power and authority:
§ B must represent that he has the power and authority to enter into the loan, and to
perform its obligations.
Þ Validity and admissibility in evidence:
§ B must represent that he has done everything required to ensure that the FA is
admissible in evidence in its jurisdiction of incorporation. (particularly important if
borrower is incorporated in a different jurisdiction from the governing law).
Þ Governing law and enforcement:
§ B must represent that the governing law of the FA, and any judgment obtained in relation to
it, will be recognised in the borrower’s jurisdiction of incorporation.
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Syndicated Facilities: Utilisation, Representations, Undertakings, and Default
Representations (and warranties)
A bank will want to lend only if it is happy with the ‘status quo’ of a borrower.
ª A facility agreement will therefore contain STATEMENTS which the bank requires the BORROWER TO
MAKE about various matters.
ª These REPRESENTATIONS (also referred to as ‘representations and warranties’) are made on signing the
facility agreement and usually repeated periodically thereafter
DEFINITION ® Representations and Warranties are statements of facts made by the borrower (and
sometimes by their guarantors) regarding information that is material to the Facility
Agreement.
® The borrower is being asked to put its money where its mouth is e.g. if borrower has said it is
company incorporated in England and Wales, and lender puts that rep in the FA, the borrower
will need to represent that it is infact a company incorporated in England and Wales
PURPOSE ® Reasons to include representations in a facility agreement include:
ü To elicit information (as part of the due diligence process) – i.e. provide full disclosure of
facts whilst the loan is being negotiated
ü To provide a ‘drawstop’ (money may not be borrowed) if they are untrue: Once the FA
has been executed, the representations will allow for a draw-stop if they subsequently
prove to have been untrue – i.e. bank doesn’t have to lend any more.
ü To allow the bank to call a default: once the money has been lent, the bank will be able
to call a default if the representations turn out to be untrue
Examples of COMMON representations
Legal ® RELATE TO THE VALIDITY OF THE BORROWER, ANY GUARANTOR AND THE LOAN
Representations DOCUMENTATION.
Þ Status:
§ The borrower must state that its duly incorporated under the laws of its ‘original
jurisdiction’ and that it has power to own its assets and carry on its business.
Þ Binding obligations:
§ B must confirm that the obligations it undertakes in the FA are legal, valid, binding and
enforceable.
Þ Non-Conflict:
§ B must usually state that entering into the FA will not conflict with any laws or
regulations, their constitutional documents, or any other agreement or instrument to
which they are party.
o If entering into the FA in breach of another contract, the other party to that
contract can sue the BANK in tort for “procuring a breach of contractual relations”.
o The representation that there is no conflict with other agreements should protect
the bank, since the tort requires the bank to act with knowledge or indifference to
any conflict.
Þ Power and authority:
§ B must represent that he has the power and authority to enter into the loan, and to
perform its obligations.
Þ Validity and admissibility in evidence:
§ B must represent that he has done everything required to ensure that the FA is
admissible in evidence in its jurisdiction of incorporation. (particularly important if
borrower is incorporated in a different jurisdiction from the governing law).
Þ Governing law and enforcement:
§ B must represent that the governing law of the FA, and any judgment obtained in relation to
it, will be recognised in the borrower’s jurisdiction of incorporation.
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