US Loan Documentation Typical clauses and recent trends

Transcription

1 US Loan Documentation Typical clauses and recent trends 11 April 2013 Dana Anagnostou & Ramona Tudorancea 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 1

2 Introduction Legal context Typical clauses in New York law governed credit agreements Syndicated facilities in the US loan market Other market trends 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 2

3 Legal context US legal system Common law system Federal vs. state laws Litigation environment Costly and time consuming (discovery, contingency fees, etc.) Jury trials/waivers US Bankruptcy laws Automatic stay Creditors voting rights in bankruptcy proceeding Fraudulent transfer Regulatory / tax considerations Banking (anti-tying rules, margin regulations) PATRIOT Act, OFAC, ERISA, FCPA, FATCA 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 3

4 US-specific issues in loan agreements FATCA provisions ERISA provisions PATRIOT Act, OFAC and money-laundering related provisions Use of proceeds and other payment related provisions Waiver of jury trial provisions Closing / documentation issues 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 4

5 US-specific issues in loan agreements FATCA (Foreign Account Tax Compliance Act) Enacted in 2010, FATCA (Sections 1471 through 1474 of the Internal Revenue Code) imposes: a new system of information reporting and a new 30% withholding tax on "withholdable" payments made by US persons and others to foreign financial institutions (FFIs) and certain non-financial foreign entities (NFFEs) that do not meet the information reporting requirements of FATCA (see IRC ). Withholdable payments include: Interest and dividends paid by a US borrower or issuer to a foreign payee. Gross proceeds from the sale of US issued debt or equity by a foreign person or entity. (See IRC 1473.) FATCA specific provisions have become standard in loan agreements. These provisions: Carve out the new FATCA withholding tax from the tax gross-up provision (so that a foreign lender will not be grossed up by a US borrower for the FATCA withholding tax), and less often increased costs / borrower indemnification Require lenders to indemnify the administrative agent in the event of a FATCA payment Require specific documentation from a foreign lender so that the US borrower can comply with its FATCA withholding obligations. Exhibit 1 : Recent examples 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 5

6 US-specific issues in loan agreements Typical FATCA provisions Standard FATCA documentation requirement: If a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause, FATCA shall include any amendments made to FATCA after the date of this Agreement. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 6

7 US-specific issues in loan agreements ERISA (Employee Retirement Income Security Act of 1974) ERISA provisions reflect issues arising under both the Internal Revenue Code and ERISA, along with related tax and benefits-related regulations Controlled group liability: defined benefit plan funding and withdrawal liabilities are joint and several among members of a controlled group Failure to meet funding standards can give rise to liens or other rights that may impair the lender's rights Representations: Confirm that the borrower complies with ERISA regulations Identify any pension plan liabilities that may arise because the borrower has not sufficiently funded its plans Confirm solvency of any retirement plans Covenants: Prevent loan parties from taking actions with respect to their employee benefit plans that may result in an event of default or otherwise impair their ability to repay the funds. Provide notice to the lenders of the occurrence of an ERISA Event or, where the term is not defined, the events comprising an ERISA Event, such as the: Occurrence of a reportable event (as defined in Section 4043(c) of ERISA) Receipt of notice from the PBGC of its intention to terminate a pension plan. Borrower's intention to terminate a pension plan or withdraw from a multiemployer plan. Exhibit 2 : Recent examples 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 7

8 US-specific issues in loan agreements ERISA definitions ERISA Event means: i. any "reportable event", as defined in Section 4043(c) of ERISA, other than those events as to which the 30-day notice period referred to in Section 4043(c) of ERISA has been waived; ii. iii. iv. the existence with respect to any Plan of a non-exempt Prohibited Transaction; the failure of any insured medical Plan to satisfy the non-discrimination requirements of Section 105 of the Code; any failure by any Pension Plan to satisfy the minimum funding standards (within the meaning of Sections 412 or 430 of the Code or Section 302 of ERISA) applicable to such Pension Plan, whether or not waived; v. the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; vi. vii. the failure to make by its due date a required installment under Section 430(j) of the Code with respect to any Pension Plan; the failure by any Loan Party or any of its ERISA Affiliates to make any required contribution to a Multiemployer Plan 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 8

9 US-specific issues in loan agreements ERISA representations ERISA Matters Each Loan Party and each of their respective ERISA Affiliates are in compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed in all [material] respects all their obligations under each Employee Benefit Plan [, except for such noncompliance which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect]. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code is so qualified or will be qualified by submission, in a timely fashion, to the Internal Revenue Service for a determination of qualification with respect to such Employee Benefit Plan (if not already submitted), and the timely making of such amendments as may be required by the Internal Revenue Service as a condition for issuance of such a favorable determination. No ERISA Event has occurred or, as of the date hereof, is reasonably expected to occur where such ERISA Event, individually or in the aggregate, would have a Material Adverse Effect. As of the most recent valuation date for any Pension Plan, any amount of Unfunded Benefit Liabilities, individually or in the aggregate for all Pension Plans (except for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), could not reasonably be expected to have a Material Adverse Effect. Neither the Borrower, any of its Subsidiaries nor any of their respective ERISA Affiliates has completely or partially withdrawn from any Pension Plan or Multiemployer Plan, or incurred termination liability to the PBGC or withdrawal liability to any such plan. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of the Borrower, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 101(l) of ERISA, could not reasonably be expected to have a Material Adverse Effect. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 9

10 US-specific issues in loan agreements ERISA representation Foreign Plans If the borrower has significant foreign operations, add: Representations and Warranties; Foreign Plans [Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect,] with respect to any employee benefit plan maintained or contributed to by any Loan Party or any of its Subsidiaries that is not subject to US law (a "Foreign Plan") and each employee benefit arrangement mandated by non-us law (a "Foreign Benefit Arrangement"): (a) all employer and employee contributions required by applicable law or by the terms of any such [Foreign Plan/Foreign Benefit Arrangement] have been made, or, if applicable, accrued in accordance with normal accounting practices; (b) the accrued benefit obligations of each [Foreign Plan/Foreign Benefit Arrangement] (based on those assumptions used to fund such [Foreign Plan/Foreign Benefit Arrangement]) with respect to all current and former participants do not exceed the assets of such [Foreign Plan/Foreign Benefit Arrangement]; (c) each [Foreign Plan/Foreign Benefit Arrangement] that is required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities; and (d) each such [Foreign Benefit Arrangement/Foreign Plan] is in compliance with: (i) all material provisions of applicable law and all material applicable regulations and published interpretations thereunder with respect to such [Foreign Plan/Foreign Benefit Arrangement] and (ii) the terms of such [plan/arrangement]. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 10

11 US-specific issues in loan agreements ERISA covenants and events of default Covenants; Notice Provisions: Each Loan Party will give prompt notice in writing to the Administrative Agent on behalf of the Lenders of: [ ] the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of any Loan Party or any of its ERISA Affiliates in an aggregate amount exceeding [$NUMBER/a Material Adverse Effect]; Events of Default: The occurrence of any one or more of the following shall constitute an "Event of Default hereunder: [ ] an ERISA Event shall have occurred, and such event or condition, together with all such events or conditions, if any, could, in the sole judgment of the Required Lenders, reasonably be expected to result in a Material Adverse Effect; OR the Company and any of its Subsidiaries or ERISA Affiliates are required to contribute or pay during any year an aggregate amount to one or more Multiemployer Plans which could reasonably be expected to have a Material Adverse Effect; (b) there shall occur one or more ERISA Events (other than any ERISA Events with respect of Multiemployer Plans) which individually or in the aggregate result in liability of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of [$NUMBER] during the term hereof; (c) there shall exist an amount of Unfunded Benefit Liabilities individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed liabilities), which exceeds [$NUMBER]; (d) circumstances exist which may reasonably give rise to a lien under ERISA with respect to any Pension Plan; or (e) any other event or condition shall occur or exist with respect to an Employee Benefit Plan; and in each case in clauses (a) through (e) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of the Administrative Agent, reasonably be expected to result in a Material Adverse Effect; 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 11

12 US-specific issues in loan agreements USA PATRIOT Act, OFAC and AML provisions The USA Patriot Act and rules of the Office of Foreign Assets Control (OFAC) impose restrictions on US lenders intended to: Limit financing of terrorist groups or terrorist activities Restrict transactions in or with persons or countries that are deemed hostile to the US Individuals and entities appear on OFAC s Specially Designated Nationals and Blocked Persons (SDN) list Blocked transactions include: making loans to OFAC sanctions targets lending with knowledge or reasonable notice that the borrower intends to use the loan proceeds in a manner that would violate OFAC For a US lender, entering into such a blocked transaction may result in: Inability to enforce rights under the loan agreement Inability to enforce rights in collateral Fines or other sanctions imposed by OFAC Exhibit 3 : Recent examples 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 12

13 US-specific issues in loan agreements PATRIOT Act notice PATRIOT Act notice Each Lender that is subject to the USA Patriot Act (Title III of Pub. L (signed into law October 26, 2001)) (the Act ) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 13

14 US-specific issues in loan agreements PATRIOT Act / OFAC definitions "Anti-Terrorism Law" means any Requirement of Law related to money laundering or financing terrorism including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act ("USA PATRIOT Act") of 2001 (Title III of Pub. L ), The Currency and Foreign Transactions Reporting Act (also known as the "Bank Secrecy Act", 31 U.S.C and 12 U.S.C. 1818(s), 1820(b) and ), the Trading With the Enemy Act (50 U.S.C. 1 et seq., as amended) and Executive Order (effective September 24, 2001). "Blocked Person" means any Person that (a) is publicly identified on the most current list of "Specially Designated Nationals and Blocked Persons" published by the Office of Foreign Assets Control of the US Department of the Treasury ("OFAC") or resides, is organized or chartered, or has a place of business in a country or territory subject to OFAC sanctions or embargo programs or (b) is publicly identified as prohibited from doing business with the United States under the International Emergency Economic Powers Act, the Trading With the Enemy Act, or any other Requirement of Law. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 14

15 US-specific issues in loan agreements PATRIOT Act / OFAC representations USA PATRIOT Act, OFAC and Other Regulations. (a) No Loan Party, any of its Subsidiaries [or[, to the knowledge of each Loan Party,] any of the Affiliates or respective officers, directors, brokers or agents of such Loan Party, Subsidiary or Affiliate] (i) has violated any Anti-Terrorism Laws or (ii) has engaged in any transaction, investment, undertaking or activity that conceals the identity, source or destination of the proceeds from any category of prohibited offenses designated by the Organization for Economic Co-operation and Development's Financial Action Task Force on Money Laundering. (b) No Loan Party, any of its Subsidiaries [or[, to the knowledge of each Loan Party,] any of the Affiliates or respective officers, directors, brokers or agents of such Loan Party, Subsidiary or Affiliate that is acting or benefiting in any capacity in connection with the Loans] is a Blocked Person. (c) No Loan Party, any of its Subsidiaries [or[, to the knowledge of each Loan Party,] any of the Affiliates or respective officers, directors, brokers or agents of such Loan Party, Subsidiary or Affiliate acting or benefiting in any capacity in connection with the Loans] (i) conducts any business or engages in making or receiving any contribution of goods, services or money to or for the benefit of any Blocked Person, (ii) deals in, or otherwise engages in any transaction related to, any property or interests in property blocked pursuant to any Anti-Terrorism Law or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 15

16 US-specific issues in loan agreements PATRIOT Act / OFAC covenants [The Loan Party will not, and will not permit any of its Subsidiaries to directly or indirectly: ] Compliance With Anti-Terrorism Regulations (a) (b) (c) (i) Violate any Anti-Terrorism Laws [or] (ii) engage in any transaction, investment, undertaking or activity that conceals the identity, source or destination of the proceeds from any category of prohibited offenses designated by the Organization for Economic Co-operation and Development's Financial Action Task Force on Money Laundering [or] [(iii) [knowingly] permit any of their respective Affiliates to violate these laws or engage in these actions]. (i) Become a Blocked Person [or] [(ii) [knowingly] permit any of their respective Affiliates to become a Blocked Person]. (i) Conduct any business or engage in making or receiving any contribution of goods, services or money to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction related to, any property or interests in property blocked pursuant to any Anti-Terrorism Law, [or] (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempt to violate, any of the prohibitions set forth in any Anti-Terrorism Law [or] [(iv) [knowingly] permit any of their respective Affiliates to do any of the foregoing]. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 16

17 US-specific issues in loan agreements Use of proceeds limitations Federal Reserve Regulations T, U and X Set out certain requirements for securities brokers and dealers (Regulation T) and lenders (Regulation U) who extend credit secured by margin stock; Regulation X extends to borrowers the provisions of Regulations T and U Sample clause: No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Federal Reserve Board, including Regulations T, U and X, and the Borrower will not permit the value of all Margin Stock owned by the Borrower and its Subsidiaries (including, without limitation, all capital stock of the Borrower from time to time held by the Borrower in treasury) to constitute more than 25.0% of the value of the consolidated assets of the Borrower. FCPA (Foreign Corrupt Practices Act) Anti-bribery provisions that make it unlawful for a U.S. person, and certain foreign issuers, to make a payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. Sample clause: No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 17

18 US-specific issues in loan agreements Other payment-related provisions Payment sharing clauses Lender receiving excess payment must purchase participations in the Advances made by the other Lenders Issues: administratively inconvenient, requires careful drafting to ensure set-off rights Usury savings clauses Reduces the interest rate to the legal rate in the event of a finding of usury Although such clauses cannot make the subject agreements nonusurious (see Simsbury Fund Inc. v. New St. Louis Associates, 204 A.D.2d 182 (1994)), in New York, parties are permitted to contract at any interest rate so long as the amount of credit extended exceeds $2.5 million. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 18

19 US-specific issues in loan agreements Waiver of jury trial The Seventh Amendment of the U.S. Constitution guarantees the right to a jury trial for civil litigants. Jury trials tend to be unpredictable, take longer and are more costly. As a result, parties to most commercial contracts waive their rights to a jury trial. Federal courts and most state courts will uphold pre-litigation jury waiver clauses, but certain states most notably California and Georgia will not enforce such clauses. Elements of the provision: IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING WAIVER WAS MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP EACH PARTY RELIED ON WAIVER IN ENTERING INTO AGREEMENT, WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 19

20 US-specific issues in loan agreements Closing / documentation issues Corporate documents Only certificates of incorporation (Inc.) or formation (LLC) are publicly available (from the Secretary of State of the relevant state(s) of incorporation and authorization to do business) Good standing certificates Prove existence and that state franchise taxes are paid, that is all DOES NOT indicate: Corporate officers/authorized signatories secretary s certificate attaching bylaws / board resolution Share capital, shares outstanding certificate of incorporation, minute books (share register, board resolutions) If ordering just before closing, check status online well in advance (if need to reinstate a company, may take a while ) Delivery from Delaware and NY is rapid (same-day), while California and Pennsylvania can take a few weeks so should be ordered well in advance For certificates ordered in advance, bring-down the good standing via phone/ confirmation on the day of closing 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 20

21 US-specific issues in loan agreements UCC primer The Uniform Commercial Code (as promulgated in each state) governs security interests in personal property Article 8: securities (corporate stock, LLC interests ) Article 9: general intangibles (including contractual rights, IP ) Security interests can secure future advances, cover after acquired property Valid and enforceable security interest requires grant / creation of the interest (generally via the security agreement), attachment (value is given by the secured party) perfection (by filing or possession/delivery/control) Other types of property are subject to different rules Real property: mortgages governed by local state law (prepared by lawyers, not notaries ) 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 21

22 US-specific issues in loan agreements UCC to-do list in secured financings Lien searches to determine if there are existing liens Release and termination of any existing liens (generally by filing a UCC-3 termination statement) Security agreement be sure to include after acquired property in the granting clause to cover any new property the borrower acquires after the closing. Filing a UCC-1 financing statement. If the personal property acquired after the closing date is of a type of collateral that is within the generic descriptions of collateral in the financing statement filed on the closing date, further UCC-1 should not need to be filed to cover afteracquired property. If a new subsidiary is created or acquired, a UCC-1 financing statement must be filed against that entity as well. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 22

23 US-specific issues in loan agreements Lien searches Types of Lien Searches UCC-1 financing statements evidencing liens (if any) against personal property of the borrower and its subsidiaries. UCC-1 fixture filing financing statements (a UCC-1 with the box for fixture filings checked off). Federal tax liens State tax liens Judgment liens. UCC lien searches Searches should be run in jurisdiction of incorporation, as well as where properties are located Generally handled by service companies (Delaware website (corp.delaware.gov) provides a list of authorized searchers ) Can take 2-3 weeks to complete 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 23

24 US-specific issues in loan agreements Additional materials and Q&A Exhibit 4: Comparison of recent US credit agreements (publicly available on SEC website (EDGAR)), including: Term Loan Agreement for Facebook, Inc., October 12 th, $1.5 billion 5-Year Credit Agreement (revolving / swingline) for National Oilwell Varco, Inc., September 28 th, $3.5 billion 364-Day Credit Agreement for Best Buy Co., Inc., August 31 st, $1.0 billion Senior Secured Credit Facilities for ACCO Brands Corporation, March 26 th, $1.05 billion 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 24

25 US loan market recent trends and developments US associations, standards and model agreements ABA (American Bankers Association) LSTA (Loan Syndications and Trading Association) US loan market segments Specific issues related to syndicated loans and participations participation vs. assignment standard of care for lead lender voting and rights of individual syndicate banks recent developments Other market trends 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 25

26 US loan market recent trends and developments Loan market segments bilateral vs. syndicated loans investment-grade vs. leveraged loans large corporate vs. middle market Statistics for 2012: leveraged loans flourished in 2012 $465 billion of leveraged loan issuance (up 24% from 2011) according to S&P Capital IQ Leveraged Commentary and Data (LCD) $664 billion (up 17% from 2011) according to Thomson Reuters LPC increased number of investors large corporate borrower-favorable market 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 26

27 US loan market recent trends and developments Investment-grade vs. leveraged loans investment-grade loans little or no fee few or no covenants syndicate composed of banks leveraged loans most profitable fee and interest rate (premiums above LIBOR) include restrictive covenants syndicate includes non-banks Standard & Poor s definition loan is BB+ or lower or not rated / spread is LIBOR+125 or higher 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 27

28 US loan market recent trends and developments Syndicated loans and participations Deals underwritten deals market-flex language «best-efforts» syndication club deals Facilities revolving credit lines swingline, multi-currency, competitive-bid, term-out, evergreen term loans letters of credit (LOC) acquisition or equipment lines (delayed-draw term loans) Borrower Arranger(s) - IM (bank book) Agent(s) - administrative, syndication & documentation syndicated banks, finance companies, institutional investors (including collateralized loan obligations (CLOs)) + secondary sales (assignments or participations) 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 28

29 US loan market recent trends and developments Syndication-related issues traditionally, syndicated banks were treated on a pro rata basis; however, in response to the financial crisis, changes to credit documentation led to changes in the pro rata treatment defaulting lender provisions amend and extend provisions debt buyback provisions also, provisions in loan documentation have been read by courts in ways not anticipated or expected, which led to subsequent adjustments of the loan documentation by lenders 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 29

30 US loan market recent trends and developments Defaulting lender provisions banks' obligations in syndicated lending are several market concerns regarding defaulting lenders after financial crisis market-practice definition included in LSTA Model Credit Agreement Provisions since 2011 payment and bankruptcy-related events are central to the typical loan agreement definition of defaulting lender consequences: defaulting lenders are disregarded for voting waivers and amendments and get no fees for unfunded commitments forced assignment ( Yank-a-Bank ) waterfall provisions are adapted etc. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 30

31 US loan market recent trends and developments Amend & extend provisions recent development, as partial solution to the refinancing cliff for the European loan market, the same problems led to the development of the forward start facilities certain lenders agree in advance to extend the maturity date of their loans, in exchange for higher margins on the existing loans specific issues deal with covenants/ collateral, ability to convert term loans into revolving and vice versa, timing, conditions of effectiveness, and voting and pro rata rules 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 31

32 US loan market recent trends and developments Borrower buy-back provisions a borrower or its affiliate may buy back part of the borrower's loan from less than all of the lenders in a syndicate at less than par value for borrower buy-backs, lenders generally require that borrower gives all lenders the opportunity to participate may not occur during default or event of default current debate on necessity of no MNPI (material non-public information) from borrower sponsor buy-backs different terms (caps on percentage, limits on voting rights, etc.) 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 32

33 US loan market recent trends and developments Court cases and loan documentation changes It is not unreasonable for lenders to rely on representations and warranties in a credit agreement regarding the accuracy of unaudited financial statements without conducting their own investigation. DDJ Mgmt. v. Rhone Group, 2010 NY LEXIS 1182 (N.Y. 2010) Certain provisions can turn a participation into an assignment (right of first refusal relating to retained portion of loan, right to elevate participation into an assignment if default occurs, information and consent rights, etc.). Empresas Cablevisión v. JPMorgan Chase (S.D.N.Y. Jan. 28, 2010) In underwritten deal, if damages for failure to provide financing cannot be readily valued, courts may be willing to award specific performance. BT Triple Crown Merger v. Citigroup Global Markets (N.Y. Sup. Ct. 2008) (Clear Channel) Individual lenders cannot enforce remedies waived by majority. In absence of specific language in loan agreement, no individual lender can enforce any remedy of the lenders, unless acting through the agent. Beal Savings Bank v. Sommer, 8 N.Y. 3d 318 (N.Y. 2007) 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 33

34 US loan market recent trends and developments Other market trends and developments strong covenant-lite loan issuance return of second lien financings loosening of SunGard requirements greater emphasis on disqualified lender lists documentation principles and loan documentation drafting frequent inclusion of equity cures 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 34

35 US loan market recent trends and developments Clauses to watch OFAC, FATCA Market disruption clauses LIBOR-related clauses Setting floor at zero in the event of negative interest rates Change in Law definition Interplay with Increased Costs, Capital Requirements Change in Law means. It is understood and agreed that (i) the Dodd Frank Wall Street Reform and Consumer Protection Act (Public Law , H.R. 4173), all Laws relating thereto and all interpretations and applications thereof and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall, for the purpose of this Agreement, be deemed to be adopted subsequent to the Closing Date. 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 35

36 Conclusion Electronic copies of today s presentation will be sent by Evaluation forms Questions? 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 36

37 Contact KRAMER LEVIN NAFTALIS & FRANKEL LLP 47 avenue Hoche Paris Tel : +33 (0) Fax : +33 (0) First Name Surname Position Dana Anagnostou Partner, Banking & Finance danagnostou@kramerlevin.com Ramona Tudorancea Associate rtudorancea@kramerlevin.com 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends 37

38 Exhibit 1: Recent examples of FATCA language 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends

39 COMPARISON OF FATCA PROVISIONS IN RECENT LARGE AND MIDDLE MARKET CREDIT FACILITIES Facebook, Inc. October 12, 2012 $1.5 billion Term Loan Agreement ov/archives/edga r/data/ / /d424570de x101.htm National Oilwell Varco, Inc. September 28, 2012 $3.5 billion 5 Year Credit Agreement (revolving / swingline) ov/archives/edga r/data/ / /d418631de x101.htm Best Buy Co., Inc. August 31, 2012 $1.0 Billion 364 Day Credit Agreement ov/archives/edga r/data/764478/ /exhibit htm ACCO Brands Corporation March 26, 2012 $1.05 billion Senior Secured Credit Facilities ov/archives/edga r/data/712034/ /ex10 1.htm Buffalo Wild Wings, Inc. February 7, 2013 $100 million Credit Agreement gov/archives/ed gar/data/ / /ex10 1.htm Snyder s Lance, Inc. September 26, 2012 $325 million Term Loan Credit Agreement gov/archives/ed gar/data/57528/ /d419309de x101.htm Memorial Resource Development LLC July 13, 2012 $50 million Credit Agreement gov/archives/ed gar/data/ / /d dex99g.htm Furmanite Worldwide, Inc. March 5, 2012 $75 million Credit Agreement gov/archives/ed gar/data/54441/ /d311657de x101.htm FATCA withholding excluded from gross up FATCA withholding excluded from increased costs FATCA withholding excluded from borrower indemnification Standard FATCA documentation provision Yes Section 2.16(b) Yes Section 2.16(d) Yes Section 2.16(c) Yes Section 2.11(b) Yes Sec 2.9(a)(ii)(B) Yes Section 2.11(d) Yes Sec 2.11(g)(ii)(D)) Yes Section 2.17(a) Yes Section 2.15(ii)(C) Yes Section 2.17(e) Yes Sec 2.17(f)(ii)(B)) Yes Sec 3.01(a)(ii)(C) Yes Section 3.04(a)(ii) Yes Section 3.01(c) Yes Sec 3.01(e)(iii) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Section 4.11 Yes Section Yes Section 5.03(g) Yes Section 2.17 Requirement to indemnify Admin Agent for FATCA liability Yes Section 2.11(e) Yes 3.01(c)(ii)(B)(y)) Yes Yes 1

40 Exhibit 2: Recent examples of ERISA language 11/04/2013 US Loan Documentation Typical Clauses and Recent Trends

41 COMPARISON OF ERISA PROVISIONS IN RECENT LARGE CAP CREDIT FACILITIES Facebook, Inc. October 12, 2012 National Oilwell Varco, Inc. September 28, 2012 Best Buy Co., Inc. August 31, 2012 ACCO Brands Corporation March 26, 2012 $1.5 billion Term Loan Agreement $3.5 billion 5-Year Credit Agreement (revolving / swingline) $1.0 Billion 364-Day Credit Agreement $1.05 billion Senior Secured Credit Facilities /d424570dex101.htm /d418631dex101.htm /exhibit htm /ex10-1.htm ERISA Event definition ERISA Event means (a) a reportable event within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (b) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(c) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 430(j) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (c) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (d) the withdrawal by the Borrower, any Subsidiary or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability to the Borrower, any Subsidiary or any of their respective ERISA Affiliates pursuant to Section 4063 or 4064 of ERISA; (e) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (f) the imposition of liability on the Borrower, any Subsidiary or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (g) the withdrawal of the Borrower, any Subsidiary or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefore, or the receipt by the Borrower, any Subsidiary or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (h) the occurrence of an act or omission which could give rise to the imposition on the Borrower, any Subsidiary or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (i) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or Termination Event means (a) the occurrence of a Reportable Event with respect to a Plan, as described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a substantial employer as defined in Section 4001(a)(2) of ERISA, (c) the giving of a notice of intent to terminate a Plan under Section 4041(c) of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. ERISA Event means (a) any reportable event, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) a failure by any Plan to meet the minimum funding standard (as defined in Section 412 of the Code or Section 302 of ERISA) applicable to such Plan, in each instance, whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. ERISA Event means (a) a material Reportable Event with respect to a Pension Plan; (b) the material failure by Holdings or any ERISA Affiliate to meet all applicable requirements under the Pension Funding Rules in respect of each Pension Plan; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (d) the withdrawal of Holdings or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (e) the receipt by Holdings or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to the intention to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan; (f) the adoption of any amendment to a Pension Plan that would require the provision of security pursuant to Section 436(f) of the Code; (g) a complete or partial withdrawal by Holdings or any ERISA Affiliate from a Multiemployer Plan or notification concerning the imposition of withdrawal liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the filing of a notice of intent to terminate or the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (i) the institution by the PBGC of proceedings to terminate a Pension Plan; (j) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (k) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (l) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Holdings or any ERISA Affiliate; and which events under clauses (a) through (l) above, either individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect. 1

42 Facebook, Inc. October 12, 2012 National Oilwell Varco, Inc. September 28, 2012 Best Buy Co., Inc. August 31, 2012 ACCO Brands Corporation March 26, 2012 $1.5 billion Term Loan Agreement $3.5 billion 5-Year Credit Agreement (revolving / swingline) $1.0 Billion 364-Day Credit Agreement $1.05 billion Senior Secured Credit Facilities /d424570dex101.htm /d418631dex101.htm /exhibit htm /ex10-1.htm the assets thereof, or against the Borrower, any Subsidiary or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan; (j) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (k) the imposition of a lien pursuant to Section 430(k) of the Internal Revenue Code or ERISA or a violation of Section 436 of the Internal Revenue Code. Other ERISA definitions Employee Benefit Plan means any employee benefit plan as defined in Section 3(3) of ERISA that is or was sponsored, maintained or contributed to by, or required to be contributed by, the Borrower, any Subsidiary or any of their respective ERISA Affiliates. Multiemployer Plan means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. ERISA Affiliate means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code, or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. ERISA Affiliate means any trade or business (whether or not incorporated) under common control with Holdings within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). Multiemployer Plan means any Employee Benefit Plan that is a multiemployer plan as defined in Section 3(37) of ERISA. Pension Plan means any Employee Benefit Plan, other than a Multiemployer Plan, that is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. Plan means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code. Reportable Event means any of the events set forth in Section 4043(b) of ERISA and the regulations issued under such section, with respect to a Plan. Multiemployer Plan means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. Foreign Pension Plan means any plan, fund (including any superannuation fund) or other similar program established or maintained outside the United States by Holdings, SpinCo or any one or more of their respective Subsidiaries (other than Immaterial Subsidiaries) primarily for the benefit of employees of Holdings, SpinCo or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code; provided that a Foreign Pension Plan shall not include a Canadian Pension Plan. Foreign Pension Plan Event means, with respect to any Foreign Pension Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (b) the failure to make the required contributions or payments, under any applicable law, on or before the due date for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan, (d) the incurrence of any liability by Holdings or any of its Subsidiaries under applicable law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (e) the occurrence of any transaction that is prohibited under any applicable law and that could reasonably be expected to result in the incurrence of any liability by Holdings or any of its Subsidiaries, or the imposition on Holdings or any of its 2