Hey guys,
Am looking through a credit agreement and am not sure what to make of this - as some background, Section 10.08 is a table discussing leverage targets over the next few quarters. From what I can garner below, it seems like the Company would not be in default if it misses these targets?
Appreciate the help guys! This is the first credit agreement I've read so still trying to get up to speed.
"11.03. Covenants. The U.S. Borrower or any of its Subsidiaries shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 9.01(f)(i), 9.04 (solely with respect to the U.S. Borrower), 9.08, 9.10, 9.12 or Section 10; provided that any default under Section 10.08 shall not constitute an Event of Default with respect to (x) the Term Loans and the Term Loans may not be accelerated as a result thereof and (y) the non-Extended Revolving Loans and non-Extended Revolving Loan Commitments, and the non-Extended Revolving Loans may not be accelerated as a result thereof and the non-Extended Revolving Commitments may not be terminated as a result thereof, until, in each case, the date on which the Revolving Loans in respect of Extended Revolving Commitments (if any) have been accelerated or the Extended Revolving Commitments have been terminated, in each case, by the Required Extended Revolving Lenders (such period commencing with a default under Section 10.08 and ending on the date on which the Required Extended Revolving Lenders terminate and accelerate in accordance with this proviso, the “Standstill Period”) or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement or any other Credit Document (other than those set forth in Sections 11.01 and 11.02) and such default shall continue unremedied for a period of 30 days after the date on which written notice thereof is given to the Borrower by the Administrative Agent or the Required Lenders; or...."
God American legal drafting is terrible.
On very quick read, it's saying breach of covenant is not an EOD unless (i) majority revolver lenders vote to call EOD and accelerate or (ii) borrower/owners don't cure (including equity cure) the breach within 30 days of required majority of lenders or lenders' agent notifying the borrower of the breach.
On a more careful reading, my original response is correct. Some nuance below.
11.03 addresses two types of events of default (EODs). Note that some breaches of the agreement could fall into BOTH classes of EOD and hence both 11.03(i) and 11.03(ii) apply.
First, 11.03(i) EODs. These are breaches of any of sections 9.01(f)(i), 9.04 (solely with respect to the U.S. Borrower), 9.08, 9.10, 9.12 or 10. 11.03(i) EODs are subject to a standstill ie all lenders can't call an EOD and accelerate (demand repayment) (hence they must "stand still") until the "Required Extended Revolving Lenders" elect to call an EOD, terminate and accelerate.
Revolver lenders are usually the banks that arranged, underwrote and syndicated the facility.
So, the company can default, but the revolver lenders (who may have a relationship with the company or, in the case of LBO finance, the PE firm that owns the company) could possibly stop lenders accelerating the loan. Unlikely they would do that, even for the sake of a PE relationship, as that means burning the accounts of all the investors they syndicated the loan to, which means they destroy their syndication capability.
11.03(ii) EODs are ANY defaults under the loan docs, other than breaches of 11.01 and 11.02. In those cases, "Required Lenders" (typically >50%) or the Administrative Agent give notice of the breach to the borrower, then the borrower has 30 days to cure the breach.
These clauses would be much easier to read if American law firms broke them up with better formatting like English lawyers do. This drafting is so 19th century, yet every US law firm does it.
The only reason I decided I hated RX after my internship is because american lawyers & their legalese made me want to off myself.
@"kidflash" - What's RX?
Restructuring, haha. I hate intercreditor agreements/debentures with a passion after this summer.
@"SSits" Thank you!
@"kidflash" - Sounds like great experience, albeit certainly not pleasant to live through.
Great that you got the skillset early. It's an asset you can use for years while others run away from legal docs in terror.
I've mainly looked at the front end of credit deals, rarely seen the restructuring side ie where it all goes wrong.
I have worked on both ends of a fair few equity f*ck ups, though. Very educational.
I think you get a much keener appreciation for how bad things can get and how important seemingly petty deal points are when you see the ugly arse end of a deal.
I was told by a parter at my Big 4 firm that he owes all of his success to his willingness to work on the messiest clients and engagements. The hours were worse, the thanks was non-existent, but he saw more of the inner workings of transactions that almost everyone else at his level. And that helped him make partner a full 2 years ahead of schedule.
He always encouraged me to run toward the engagements that my peers were running away from.
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