![leveraged loans arrangement fees leveraged loans arrangement fees](https://i.pinimg.com/736x/5d/db/99/5ddb999cf0306adccfedb3040a5ead7b.jpg)
![leveraged loans arrangement fees leveraged loans arrangement fees](https://www.liquidlogics.com/wp-content/uploads/debt-and-equity-financing.jpg)
A sample clause: The Administrative Agent shall receive certified resolutions of the Board of Directors approving the execution of the Loan Documents. It may also list conditions that need to be fulfilled before future credit extensions are granted. This short section summarizes the fees that need to be paid and the certificates and documents that need to be completed for the loan agreement to take effect. The process for requesting and issuing letters of credit Loan fees for which the borrower is responsible, including the agent’s fee and the facility fee that applies to the unused portion of certain tranches The process for converting debt from one tranche to another Terms associated with repayment, including pre-payments minimum payment amounts and mandatory pre-payments Procedures for modifying debt terms and establishing new credit facilities How the borrower can initiate draws and how lenders make funds available in response The different facilities extended to the borrower (e.g., revolver, term, swing line, bid) More specifically, the section describes: This section covers the fundamental loan-related obligations of the parties and prescribes methods for fulfilling those obligations. For a borrower with substantial real estate holdings, the focus may instead be on its portfolio of property assets. A loan agreement involving a clothing retailer may cover the valuation of gift card receivables. The Definitions section performs these functions, with details that depend on the borrower’s line of business. Since the debt to asset ratio can affect the interest rate, it becomes necessary to specify a) the non-cash items that should be included when tabulating asset totals, and b) a method for determining their cash value. PRICING LEVELRATIOTERM A SOFR RATE LOANPricing Level 1Less than or equal to 35%1.20% Pricing Level 2Greater than 35% but less than or equal to 40%1.30% Pricing Level 3Greater than 40% but less than or equal to 45%1.45% Pricing Level 4Greater than 45% but less than or equal to 50%1.60% Pricing Level 5Greater than 50%1.80% Measuring Assets, Debt, and Collateral Table 1: Sample Interest Rate Schedule for a Term A Loan, Based on Borrower Debt Ratio As the borrower's debt ratio increases, so does the interest rate. A borrower with a low debt ratio at Pricing Level 1 would secure an interest rate of SOFR + 1.20%. Here, the sum of an exogenous benchmark rate (SOFR) and a margin fixed by the borrower's debt ratio determine the interest rate.
![leveraged loans arrangement fees leveraged loans arrangement fees](https://www.bis.org/publ/qtrpdf/r_qt1809/images/graph1-A.jpg)
Figure 1 shows one example using the borrower's debt ratio. The formulas for all these variables are usually expressed in a table format. Borrowers with stronger debt ratios (total debt to gross asset value) and credit rating agency scores enjoy lower interest rates. Two commonly measured variables look at the borrower’s debt ratio and credit rating agency score. Loans are typically issued at a base interest rate that adjusts upwards in response to variables that reflect the financial health of the borrower. A short discussion of these two areas follows. The terms here are unique to each agreement and therefore entail more vigorous negotiation between loan counterparties. Two critical exceptions to this general uniformity relate to a) interest rates, and b) procedures for measuring debt, assets, and collateral. In all of the above, there is much standardization with limited variance exhibited across different loan agreements. Irons out semantic fine points (e.g., “The word ‘will’ shall be construed to have the same effect as the word ‘shall’.)Įstablishes that when specified people, documents, institutions, or statutory codes are replaced by a successor, the new version or replacement assumes the role of the original entity. Ties generic language to specific referents (e.g., states that “the bankruptcy code” relates to Title 11 of the United States Code sets forth that all timings denote US Eastern Standard Time) ĭefines accounting formulas, such as net income. Spells out the long forms of acronyms like GAAP The section now accounts for over a third of the pages in a typical document.Īt a basic level, the section describes terms and clarifies references used throughout the document. The Definitions section plays a pivotal role in the debt document, belied in part by its pedestrian name. For CFOs contemplating new debt issuance, acquaintance with the legal fundamentals can equip them to engage more constructively with lenders and to communicate more authoritatively with their corporate board and internal finance teams. By summarizing the sections of a typical loan agreement in simple terms, this paper aims to provide finance professionals with greater insight into the debt raise process. Couched in dense legalese spanning more than two hundred pages, leveraged loan agreements can be difficult to parse, even for experienced professionals.