Macroteorías

Clause 18 is largely similar to the equivalent provisions in the Investment Grade Documents, subject to a couple of important commercial points, discussed below. It operates on the assumption that the Borrower will pay the Lenders gross (i.e. without withholding tax). Borrowers will therefore need to satisfy themselves at the outset as to the extent of any applicable gross-up obligations and consider the tax implications of potential changes in law and post-Closing changes to the syndicate.

In the event that the tax gross-up and indemnity provisions apply, under the Leveraged Facilities Agreement Borrowers can elect to exercise their rights to prepay or to replace the affected Lender pursuant to Clause 11.6 (Right of cancellation and repayment in relation to a single Lender or Issuing Bank) and Clause 41.3 (Replacement of Lender).

In September 2008, the LMA made a number of changes to the tax provisions in the Leveraged Facilities Agreement, some of the more significant substantive changes being as follows:

• in Clause 18.1 (Definitions):

¾ the reference to Treaty Lenders was taken out of square brackets in the definition of “Qualifying Lenders”, recognising that Treaty Lenders are now very commonly

included in lending syndicates; and

¾ in the definition of “Treaty Lender”: the blank in square brackets which used to appear

as paragraph (c) in the definition was deleted;

• a new Clause 18.5 (Lender Status Confirmation) was added which requires all Lenders who

become Lenders after the date of the Agreement to confirm their tax status (i.e. whether or not they are a Qualifying Lender, and/or a Treaty Lender). Failure to give such a confirmation will not invalidate the transfer/assignment documentation but the Lender will not be entitled to be treated as a Qualifying Lender if it does not give the confirmation. The confirmation is expressly given for the benefit of the Agent “without liability to the Obligors”; and

• the old Clause 18.7 (PTR Scheme) was deleted (on the basis that the provisional treaty

relief scheme was not sufficiently widely used to be contained in a model form document). Borrower Notes

The tax provisions are considered in detail in the ACT Borrower’s Guide to the Investment Grade Documents (Part II, Clause 13). Borrowers may also find the commentary included under “Gross-up provision” and “increased costs” in the Introduction to Loan Finance section of the Handbook helpful by way of background.

designed for UK corporate borrowers, despite requests from the ACT that they should, at least in outline, cater for international groups. Adaptation will therefore be needed where the Borrower group includes overseas obligors. Tax advice in all relevant jurisdictions will be needed on these provisions at an early stage.

Broadly, leveraged financings generally involve (or have so far involved) much more diverse categories of Lender. The greater the diversity in terms of the types of Lenders involved in the transaction, the more complicated the tax analysis is likely to be.

Some of the September 2008 changes to the tax provisions require comment from a Borrower perspective.

• The removal of the blank in square brackets in the definition of “Treaty Lender” is

potentially significant. The blank was intended as a marker for the parties to set out conditions (by reference to the relevant Treaty or Treaties) which a Treaty Lender must satisfy in order to qualify as a Treaty Lender and get the benefit of the gross-up.

The intention was that Borrowers would seek to include as part of the definition of Treaty Lenders, a confirmation that the relevant Lender satisfies all of the conditions a Lender is required to satisfy under the relevant Treaty, subject to completion of any procedural formalities.

If the blank was not appropriately filled in, the risk for Borrowers was that Lenders would become entitled to the gross-up on the basis that they fulfil conditions (i) and (ii) of the definition even if relief is not likely to be forthcoming.

Whilst a marker, as opposed to a suggestion as to how parties may fairly allocate risk in this area is a less than perfect solution, the deletion of the blank is a commercial point – the Leveraged Facilities Agreement no longer contemplates that Borrowers should require Lenders to satisfy Treaty conditions in order to qualify as Treaty Lenders and get the benefit of the tax gross-up provisions.

In relation to Treaty Lenders generally, Borrowers are reminded that Treaty relief from UK withholding tax can take several months to obtain. Even if “Treaty Lender” is defined

appropriately therefore, the risk for the Borrower is that Treaty relief is not forthcoming by the first Interest Payment Date. The Leveraged Facilities Agreement (in the same way as the Investment Grade Documents) provides only a weak obligation on Treaty Lenders to assist Borrowers in this regard: Clause 18.2(g) provides that Treaty Lenders will co-operate with the Borrower in order to complete the procedural formalities for relief. Borrowers might try to frame more clearly the steps each Treaty Lender is obliged to take in terms of seeking clearance, for example, by requiring the relevant applications to be made within a particular period of time (e.g. 15 days), by requesting that copies of communications with the tax authorities are provided to the Parent and by including an undertaking from the Lender to use its reasonable endeavours to complete the process promptly.

Borrowers should also seek to provide that if an Obligor has to make a Tax Deduction and gross up a Treaty Lender, a rebate will apply if and when relief under the relevant Treaty is granted. Additionally, as a practical point, if the syndicate includes Treaty Lenders, Borrowers will want to defer the first Interest Payment Date as far as possible (although that

will not address any tax risk that may arise during the life of the loan in relation to secondary trading, see further Clause 29.2 (Conditions of assignment or transfer below)).

Borrowers are referred to the relevant provisions of the ACT Borrower’s Guide to the Investment Grade Documents for further commentary on the treatment of Treaty Lenders.

• New Clause 18.5, the requirement that Lenders provide a tax confirmation as to their status, is a welcome development. Borrowers should note, however, that the confirmation does not apply to members of the original syndicate, only to Lenders who become Lenders after the date of the Agreement, so Borrowers will still need to undertake due diligence on the tax status of the Original Lenders. Additionally, the drafting of Clause 18.5 might be improved: it refers to the New Lender who fails to confirm its tax status being treated for the purposes of the Agreement “as if it is not a Qualifying Lender”. This, combined with the confirmation being given expressly for the benefit of the Agent might conceivably cast doubt on the Obligors’ ability to rely on the provision. Borrowers may wish to clarify this point, for example, by the insertion of the words “(including by each Obligor)” after “for the purposes of this Agreement”.

• Another important tax-related change was made to the Leveraged Facilities Agreement in September 2008, which concerns the manner in which tax risk is allocated on the assignment or transfer of participations in the Facilities, namely the removal of the Borrower’s protection, previously included in the Leveraged Facilities Agreement, against transfers or assignments resulting in an increased tax burden. This issue is discussed at Clause 29.2 (Conditions of assignment and transfer).