Consulado de El Salvador en Las Vegas Nevada, Estados Unidos

Clause 16 (which relates to market disruption and the non-availability of interest rate quotations) is identical to the equivalent provisions in the Investment Grade Documents. The operation of these provisions is explained in the ACT Borrower’s Guide to the Investment Grade Documents (Part II, Clause 11).

Clause 16.4: Break Costs

This Clause provides that any prepayment of the Facilities shall be made with accrued interest and Break Costs.

Borrower Notes

The definition of “Break Costs” used in the Leveraged Facilities Agreement is substantially identical to the definition used in the Investment Grade Documents: see the ACT Borrower’s Guide to the Investment Grade Documents, Part II, Clause 11.4. There is one notable difference: Borrowers often argue that loss of Margin should be excluded from Break Costs on the basis that the Lenders should not benefit from the Margin on an amount prepaid or repaid from the date of payment to the end of the Interest Period. Clause 16.4 of the Leveraged Facilities Agreement includes optional wording to exclude amounts in respect of Margin from Break Costs (which is not contemplated in the Investment Grade Documents). It is quite common for Borrowers to achieve this exclusion in leveraged transactions.

CLAUSE 17: FEES

Clause 17 sets out the various fees payable by the Obligors to the Finance Parties in relation to the Facilities. These provisions often cross-refer to the provisions of separate Fee Letters.

Borrower Notes

In relation to fees generally, a helpful commentary is included in the Introduction to Loan Finance section of the Handbook.

Obligors have often agreed with Lenders that the financing is provided on a “no deal no fee” basis. This is not reflected in this Clause. “No deal no fee” means that no fees are payable unless Completion occurs. This concession may be particularly important in competitive auction situations where committed funds are required to give the bidder a competitive advantage but where there is no guarantee that the bidder will ever utilise the Facilities.

Clause 17.1: Commitment fee

This Clause contains the framework for insertion of the applicable commitment fees. It contemplates that commitment fees will be payable across the Facilities from the start of the relevant Availability Period.

Borrower Notes

Commitment fees are traditionally payable from the start of the Availability Period for the relevant Facility. It has become quite common, however, to see commitment fees being payable from the earlier of the Closing Date or a fixed period following the date of the Agreement (sometimes around 1 to 2 months). If it is agreed that commitment fees should only apply from the Closing Date, commitment fees are unlikely to be incurred on the Term Facilities as these should be fully drawn on the Closing Date.

“Ticking” fees may also apply to some types of Facility. These are fees set at a lower level than Commitment Fees which accrue whilst the relevant Facility remains unutilised (e.g. during the period from the date of the Agreement to the Closing Date).

Clause 17.2: Arrangement fee, Clause 17.3: Agency fee and Clause 17.4 Security Agent fee

These provisions cross-refer to the fee payment arrangements in separate Fee Letters.

Borrower Notes

Arrangement fees will often be payable on first Utilisation or on the Closing Date, which in the case of the Term Facilities will usually coincide with the first Utilisation date.

Agency and Security Agency fees on a leveraged transaction are usually payable on first Utilisation or the Closing Date and then quarterly (or sometimes less frequently) thereafter.

Clause 17.5: Fees payable in respect of Letters of Credit

This Clause reflects the usual charging arrangements for Letters of Credit: a fronting fee payable to the Issuing Bank in relation to each Letter of Credit, and a fee payable to the Agent for each Lender, pro rata, on the outstanding amount of each Letter of Credit.

Paragraph (a) provides that the fronting fee (usually 0.125%) is payable to the Issuing Bank on the outstanding amount of any Letter of Credit in respect of which the Issuing Bank is counter-indemnified by the other Lenders. Paragraph (b) provides that Letter of Credit fees are payable at a rate equal to the Revolving Facility Margin (which is the rate that usually applies) on the outstanding amount of any Letter of Credit.

Borrower Notes

The impact of the cash collateralisation of Letters of Credit on the amount of fees due is not entirely clear under Clause 17.5. Both fees are expressed to accrue on the outstanding amount of any Letter of Credit from the date of issue of the Letter of Credit until its Expiry Date:

 Paragraph (i) of Clause 1.2 (Construction) provides that an “outstanding” amount under a Letter of Credit at any time is the maximum amount that is or may be payable by the relevant Borrower in respect of that Letter of Credit at that time. This definition makes no reference as to whether cash cover should be netted off against outstanding amounts.

 “Expiry Date” is defined in Clause 1.1 (Definitions) as the last day of the “Term” of a Letter of Credit, meaning “each period determined under this Agreement for which the Issuing Bank is under a liability under a Letter of Credit”. Borrowers may repay or prepay Letters of Credit by posting cash cover in the manner prescribed by the Agreement (see paragraph (f) of Clause 1.2 (Construction) which provides that a reference to a Borrower “repaying” or “prepaying” Letters of Credit includes the provision of “cash cover” which is defined in paragraph (d) of Clause 1.2). The availability of “cash cover” results in a reduction in the contingent exposure of the Issuing Bank, hence on this basis it is arguable that the Issuing Bank is no longer under a “liability” to the extent of the cash cover. See also Clause 7.1 (Immediately payable) in relation to the definitions of “repaying or prepaying” and “cash cover”.

One might argue therefore, that on the basis of Clause 17.5 as drafted, neither fronting or Letter of Credit fees should accrue to the extent Letters of Credit are cash covered. The point is, however, unclear and Borrowers commonly seek clarification, by providing expressly that if and to the extent a Letter of Credit is repaid or prepaid, the fronting fee payable to the Issuing Bank and the letter of credit fee payable for the account of each Lender in respect of that Letter of Credit shall cease to be payable.

Borrowers will expect that the fronting fee will not accrue to the extent of the Issuing Bank’s/its Affiliates’ own participation in the Letter of Credit facility i.e. on amounts counter-indemnified by the Issuing Bank or its Affiliates in its/their capacity as Lenders, on the basis that the Issuing Bank is not “fronting” the Letter of credit to extent of its own/its Affiliates’ participation.

Borrowers may prefer that these fees are payable in arrears on the last day of each quarter (paragraph (c) provides payment options on the first or last quarter days). Paragraph (d) contemplates some other administration or issuance fee on top of the fronting fee being paid to the Issuing Bank. This provision is commonly deleted.

Clause 17.6: Interest, commission and fees on Ancillary Facilities

This Clause provides that interest, commission and fees on Ancillary Facilities shall be determined bilaterally between the relevant parties. See further Clause 9 (Ancillary Facilities).

Section 6: Additional Payment Obligations