It is common practice for the terms of a facility agreement to be amended or re-structured on a number of occasions during its lifetime. As the impact of the current climate takes hold, funders are receiving a surge in such requests, evidently attributable to changes in Borrowers' circumstances. For that reason, it is a worthwhile exercise to remind ourselves of some of the key considerations when documenting such amendments.
1. Documenting the amendments
What form of documentation is most appropriate will depend on the nature of the amendments. For minor amendments, an amendment agreement (or letter) may be appropriate. For amendments that are more significant and complex in nature, an amendment and restatement agreement may be more appropriate (this effectively replaces the existing facility agreement).
There may be other influencing factors. For example, older facility agreements may need to be amended and restated to bring the terms in line with funders' current policy requirements or current law. In any case, it is important to consider what is the most pragmatic and cost-effective approach.
Where Borrowers' circumstances have changed in a more temporary way (for example, it is experiencing short term trading difficulties) it may be more appropriate to temporarily waive or suspend the relevant provision for an agreed period of time. This would be documented by way of a waiver letter or consent letter which avoids making any permanent changes to the facility agreement.
2. Who is involved?
For bilateral facilities, the amendment agreement will be entered into by the Borrower and the Lender. For syndicated facilities, the Facility Agent will typically enter into the amendment agreement, as agent of the other Finance Parties, with the Borrower.
It is sensible for a Borrower to approach the Lender or Facility Agent as early as possible to avoid any delays. A Lender may need to obtain credit approval for the proposed amendments or a Facility Agent may need some time to approach and liaise with the Lenders in the syndicate in relation to the amendments. It is always worth bearing in mind how these factors could impact on timing.
3. Check the wording in the existing facility agreement
Most facility agreements will include an 'amendments and waivers' clause setting out certain procedural requirements that need to be followed. For syndicated facilities, this clause will generally distinguish whether a matter requires the consent of the Majority Lenders or the unanimous consent of all Lenders (typically reserved for changes to certain key provisions, such as the Margin).
Other relevant provisions to check include the 'costs and expenses' clause and any notice requirements.
4. Amended secured facilities - will the existing security (or guarantees) remain effective?
This is a key question that needs proper analysis each time the terms of a secured facility agreement change.
There are a range of factors to consider. For example, how substantial are the amendments or does the definition of 'Finance Documents' in the existing facility agreement incorporate future documents. The basic principle to consider is whether the security is 'all monies' or 'specific monies' security.
As the term suggests, 'all monies' security typically covers 'all monies' owing by the principal debtor to the funder (including any obligations that arise in the future). In principle, 'all monies' security should secure amended obligations without the requirement for new security. However, it is advisable to obtain written confirmation from the obligors that the existing security will remain in full force and effect notwithstanding the amendments. Such confirmation should always be obtained if the amount of debt is being increased.
This contrasts with 'specific monies' security which secures obligations under a particular set of finance documents or a specific agreement. 'Specific monies' security is unlikely to continue to secure the amended obligations. Consider the circumstances and the precise drafting used in the original security document to ensure that the funder has the benefit of true 'all monies' security.
Particular care should be exercised when reviewing guarantees or third-party security; the legal principles and case law in this area are complex. Do the proposed amendments prejudice the position of the guarantor or third-party security provider in any way (for example, extending the term)? How substantial are the proposed amendments? It may be prudent to obtain express consent to the amendments from such guarantors and security providers as well as confirmation that the existing guarantees and security remain unaffected. In certain cases, a funder is likely to need new security or guarantees (especially where the amendments are substantial). Assessment should be made on a case-by-case basis to avoid any risk of the guarantor or security provider being inadvertently discharged from its obligations.
Where new security or guarantees are required, some other key issues to consider include: has the hardening period been reset; are there any new perfection requirements; are there any potential implications on any existing intercreditor arrangements.
Whilst funders may seek to err on the side of caution, Borrowers may feel reluctant to incur the time and expense of having repeat security documentation put in place. Understanding the risks and weighing up the best approach in a commercial context is essential.
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Senior Associate
