Guide to Agency Protections March 2017 A Loan Market Association Guide
A LOAN MARKET ASSOCIATION GUIDE A GUIDE TO AGENCY PROTECTIONS Loan Market Association 10 Upper Bank Street, London E14 5JJ Loan Market Association 2017 Published by the Loan Market Association in March 2017 10 Upper Bank Street, London E14 5JJ Telephone: +44 (0)20 7006 6007 Fax: +44 (0)20 7006 3423 Email: lma@lma.eu.com Website: www.lma.eu.com All rights reserved. No part of this publication may be reproduced, stored in any retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the copyright holder, for which application should be addressed in the first instance to the publishers. No liability shall attach to the authors, the copyright holder or the publishers for loss or damage of any nature suffered as a result of the reproduction of any of the contents of this publication. The views and opinions expressed in this publication are the views of the authors. The Loan Market Association and the authors have made every effort to ensure the complete accuracy of the text but none of the Loan Market Association, the authors or the publishers can accept any legal responsibility or liability for any error or omission in its contents. This "Guide to Agency Protections" is not intended to be completely comprehensive. Rather, it seeks to provide an overview of the protections afforded to an agent under LMA facility documentation. Most importantly, this publication is not designed to provide legal or other advice on any matter whatsoever. The Loan Market Association The Loan Market Association (LMA) is the trade body for the Europe, Middle East and Africa (EMEA) syndicated loan market and was founded in December 1996 by banks operating in that market. Its aim is to encourage liquidity in both the primary and secondary loan markets by promoting efficiency and transparency, as well as by developing standards of documentation and codes of market practice, which are widely used and adopted. Membership of the LMA currently stands at over 600, covering 60+ nationalities, and consists of banks, non-bank lenders, law firms, rating agencies and service providers. The LMA has gained substantial recognition in the market and has expanded its activities to include all aspects of the primary and secondary syndicated loan markets. It sees its overall mission as acting as the authoritative voice of the EMEA loan market vis à vis lenders, borrowers, regulators and other interested parties. 1
CONTENTS Page Number INTRODUCTION 3 PROTECTIONS GIVEN TO AN AGENT IN LMA FACILITY DOCUMENTATION 4 2
INTRODUCTION In syndicated loan agreements the role of an agent is intended to be solely mechanical and administrative in nature. The LMA Guide to Syndicated Loans and Leveraged Finance Transactions identifies the agent's functions as acting as a point of contact with all parties to the agreement, monitoring compliance of obligors with certain requirements in the agreement, acting as a post box, postman and record keeper and finally acting as a paying agent for all payments made under the loan agreement. The agent is appointed by the arranger and the lenders, and acts on their behalf and not on behalf of the obligors. Whilst the agent under a syndicated loan agreement has various duties, tasks and authorities, it is generally accepted in the syndicated loan market that so long as the agent carries out those functions with reasonable skill and care, the agent should be protected from any loss or liability in carrying out those functions. An LMA facility agreement therefore contains a number of protective provisions which seek to exclude the Agent from any such loss and liability. The purpose of this guide is not to provide a general overview of the workings of an agent bank acting within syndicated facilities. Instead the guide seeks to provide an overview of the principal protections provided in an LMA facility agreement, and assist agents, arrangers, lenders and those agreeing loan documentation to identify the standard protections that an agent under a loan agreement would expect to benefit from. Any amendments to a loan agreement, which either have the effect of extending the duties of the agent or limiting the protections of the agent, should be considered carefully. Agent approval should also be sought before any such changes are made or agreed. This guide uses, where appropriate, relevant extracts from the recommended form of Senior Multicurrency Term and Revolving Facilities Agreement for Leveraged Acquisition Finance Transactions produced by the LMA (Facility Agreement). Clause references refer to the Facility Agreement and terms defined in the Facility Agreement have the same meaning when used in this guide. 3
PROTECTIONS GIVEN TO THE AGENT IN LMA FACILITY DOCUMENTATION The following protections are included in LMA recommended form facility agreements:- A. LIMITATION OF DUTIES The arranger, lenders and issuing bank (if any) expressly authorise the agent to perform the duties, obligations and responsibilities specifically given to it in the Finance Documents together with any other incidental rights, powers authorities and discretions 1. The agent only has the duties, obligations and responsibilities that are specified in the Finance Documents, and no others shall be implied 2. Any fiduciary or trustee duties that may otherwise arise from acting as the agent are expressly excluded. The role of the agent in a syndicated loan is expressed to be solely mechanical and administrative in nature 3. Unless otherwise specified, the agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to any party 4. The agent is not responsible or liable for: (i) any information supplied by it in, or in connection with, the Finance Documents 5 ; (ii) any Finance Document, Transaction Security or other document connected to the Finance Documents or Transaction Security 6 ; (iii) any determination as to whether any information is non-public information 7. The agent benefits from a confirmation from each Lender that it is solely responsible for making its own assessment of all risks in relation to the Finance Documents including, for example, the creditworthiness of the obligors, all aspects of the transaction documentation, its own legal position vis-à-vis the other parties and all information provided to it from whatever source 8. The agent is not required to carry out "know your customer" (KYC) checks on behalf of a lender or other checks as to whether the transaction contemplated may be unlawful for a lender. The agent benefits from a confirmation that each lender is solely responsible for any such checks and may not rely on any statement relating to such checks made by the agent 9. An agent is not obliged to sign an otherwise duly completed Assignment Agreement or Transfer Certificate until it is satisfied that is has complied with all necessary KYC or similar checks in relation to a New Lender 10. Similarly, an assignment of rights will only be effective once the agent has performed all necessary KYC or similar checks in relation to such 1 Clause 33.1(b) (Appointment of the Agent) 2 Clause 33.3(g) (Duties of the Agent) 3 Clause 33.3(a) (Duties of the Agent) 4 Clause 33.3(d) (Duties of the Agent) 5 Clause 33.8(a) (Responsibility for documentation) 6 Clause 33.8(b) (Responsibility for documentation) 7 Clause 33.8(c) (Responsibility for documentation) 8 Clause 33.16 (Credit appraisal by the Lenders, Issuing Bank and Ancillary Lenders) 9 Clause 33.10(d) (Exclusion of liability) 10 Clause 30.6(b) (Procedure for transfer)/clause 30.7(b) (Procedure for assignment) 4
assignment to a New Lender 11. B. RIGHTS AND DISCRETIONS The agent is not obliged to do, or omit to do, anything which would or might (in its reasonable opinion) constitute a breach of any law or regulation, or a breach of a fiduciary duty or duty of confidentiality 12. The agent may rely on any representation, communication, notice or document believed by it to be genuine, correct and appropriately authorised 13. Absent actual knowledge, the agent may assume that no default has occurred under the finance documents 14. In the case of certificates, the agent may rely on the truth and accuracy of a certificate as to any matter of fact or circumstance which might reasonably be expected to be within the knowledge of the person providing the certificate 15. In the case of a certificate approving a particular dealing, transaction, step or action, the agent may rely on that certificate 16. Unless a Finance Document states otherwise, the agent may act or refrain from acting in relation to any right, power, authority or discretion in accordance with the instructions of the Majority Lenders 17, with any such instruction being binding on all Finance Parties save for the Security Agent 18. The agent may assume that any instructions it receives from any lender or group of lenders are given in accordance with the Finance Documents and, absent notice to the contrary, that such instructions have not been revoked 19. The agent is entitled to refrain from acting in accordance with any instructions of any lender or group of lenders until it has received any indemnification and/or security that it may in its discretion require 20. In the absence of instructions, the agent may act (or refrain from acting) as it considers to be in the best interest of the lenders 21. The agent may engage 22 and rely on 23 the advice or services of professional advisers, including accountants and lawyers, and is not liable for any damages, costs, losses, diminution in value or any liability whatsoever arising as a result of the agent relying on such advice. If the agent in its reasonable opinion deems it desirable, it may also engage and pay for the services of any lawyers to act as independent counsel to the agent 24. The agent may disclose to any other party any information it reasonably believes it has received as agent unless a Finance Document provides otherwise 25. In addition, and without prejudice to the generality of this permission, the agent is expressly permitted to disclose 11 Clause 30.3(c)(iii) (Other conditions of assignment or transfer) 12 Clause 33.7(i) (Rights and discretions) 13 Clause 33.7(a)(i) (Rights and discretions) 14 Clause 33.7(b)(i) (Rights and discretions) 15 Clause 33.7(a)(iii)(A) (Rights and discretions) 16 Clause 33.7(a)(iii)(B) (Rights and discretions) 17 Clause 33.2(a) (Instructions) 18 Clause 33.2(c) (Instructions) 19 Clause 33.7(a)(ii) (Rights and discretions) 20 Clause 33.2(d) (Instructions) 21 Clause 33.2(e) (Instructions) 22 Clause 33.7(c) (Rights and discretion) 23 Clause 33.7(e) (Rights and discretion) 24 Clause 33.7(d) (Rights and discretion) 25 Clause 33.7(g) (Rights and discretions) 5
the identity of a Defaulting Lender to the Parent and other Finance Parties 26. The agent may act through its officers, employees and agents and is not responsible for any errors of judgments they may make or be bound to supervise them. Equally, the agent is not responsible for any loss incurred by reason of their misconduct, omission or default unless directly caused by the agent's gross negligence or wilful misconduct 27. The agent is not obliged to incur cost, risk its own funds or incur financial liability in acting as agent if it has grounds for believing the repayment of such funds or adequate indemnity or security is not reasonably assured to it 28. The agent is not obliged to enquire whether there has been a default by an obligor, whether any party is in breach of any of its obligations or whether any other event specified in a Finance Document has occurred 29. An agent may, in its sole discretion, terminate its role or resign and appoint one of its Affiliates in its place 30. C. EXCLUSIONS OF LIABILITY The agent is protected from any liability whatsoever (including for negligence) unless the damages, costs, losses, diminution in value or liability arises as a result of taking or not taking any action under or in connection with any Finance Document or the Transaction Security and it is directly caused by the agent's gross negligence or wilful misconduct 31. Officers, employees and agents of the agent are protected from any proceedings being taken against them by any Party (other than the agent) in respect of any potential claim or act or omission by them and each officer, employee and agent is entitled to rely on this exclusion 32. The agent is not liable for the consequences of any delay in crediting an account with a required amount if it has taken all necessary steps as soon as reasonably practicable to comply with the rules of any recognised clearing or settlement system 33. The agent is not liable for any damages, costs or losses whatsoever as a result of giving notice to the Parent and the Lenders that it has received all condition precedent documentation in relation to an Additional Borrower or Additional Guarantor 34. To the extent the agent is liable for any losses, they are limited to the amount of actual loss which has been finally judicially determined but without reference to any special conditions or circumstances known to the agent. In no event is the agent liable for loss of profits, goodwill, reputation, business opportunity or anticipated saving or for special, punitive, 26 Clause 33.7(h) (Rights and discretion) 27 Clause 33.7(f) (Rights and discretion) 28 Clause 33.7(j) (Rights and discretion) 29 Clause 33.9 (No duty to monitor) 30 Clause 33.12(a) (Resignation of the Agent) 31 Clause 33.10 (Exclusion of liability) 32 Clause 33.10(b) (Exclusion of liability) 33 Clause 33.10(c) (Exclusion of liability) 34 Clause 32.2(c) (Additional Borrowers) and Clause 32.4(f) (Additional Guarantors) 6
indirect or consequential damages whether or not advised to the agent as a possibility 35. D. INDEMNITIES I. PARENT'S INDEMNITY TO THE AGENT 36 In addition to the indemnities given in favour of all of the Finance Parties, the agent benefits from an indemnity given to it by the Parent for any cost, loss or liability incurred by the agent (acting reasonably), (i) in investigating any event which the agent reasonably believes is a Default, (ii) for acting or relying on an instruction which it reasonably believes to be genuine, correct and appropriately authorised, (iii) in instructing professional advisers or experts as permitted, and (iv) for any other cost, loss or liability incurred by the agent in acting as agent under the Finance Documents. This indemnity does not apply where any loss arises by virtue of the agent's gross negligence or wilful misconduct except where the liability arises as a result of the agent taking or failing to take any steps under Clause 36.11 (Disruption to Payment Systems etc), in which case the indemnity covers all categories of liability except any claim based on the fraud of the agent. II. LENDERS' INDEMNITY TO THE AGENT 37 Each lender must indemnify the agent within three Business Days of demand, pro rata to its share of the Total Commitments, for any cost, loss or liability incurred by the agent. This indemnity does not apply where the loss, cost or liability arises as a result of the agent's gross negligence or wilful misconduct except where the cost, loss or liability arises as a result of the agent taking or failing to take any steps under Clause 36.11 (Disruption to Payment Systems etc), in which case the indemnity covers all categories of liability except any claim based on the fraud of the agent. This indemnity applies to the extent that the agent has not been reimbursed by the borrower in accordance with the Finance Documents. E. PAYMENT PROTECTION I. FEES, COSTS AND EXPENSES The agent is paid an agency fee by the Parent in an amount and at the times agreed in a Fee Letter 38. The Parent must pay the agent promptly on demand the amount of all reasonably incurred costs and expenses (including legal fees) in connection with the negotiation, preparation, printing, execution, syndication and perfection of (i) the transaction documentation and (ii) any Finance Documents entered into after completion 39. If an Obligor requests an amendment, waiver or consent or an amendment is required as a result of a change in the lawful currency of a country pursuant to Clause 36.10 (Change of currency), the Parent must pay the agent within three Business Days of demand the amount 35 Clause 33.10(e) (Exclusion of liability) 36 Clause 21.3 (Indemnity to the Agent) 37 Clause 33.11 (Lenders' indemnity to the Agent) 38 Clause 18.3 (Agency fee) 39 Clause 23.1 (Transaction expenses) 7
of all reasonably incurred costs and expenses (including legal fees) in responding to, evaluating, negotiating or complying with that request or requirement 40. Any amount payable to the agent under the indemnities and fees and expenses provisions referred to above must also include the cost of the agent's management time or other resources and will be calculated on a reasonable daily or hourly rate as notified to the Parent and the Lenders, and is in addition to any agency fee payable under any Fee Letter 41. II. CLAWBACK AND PRE-FUNDING 42 The agent is not obliged to make any required payments to another party until it has established to its satisfaction that it has already received the relevant funds from the payer. However, if the agent pays an amount to another party and it proves to be the case that the agent has not actually received that amount from the payer, the party to whom the amount was paid, is required, on demand, to refund that amount to the agent, together with interest on that amount from the date of payment to the date of receipt by the agent, calculated by the agent to reflect its cost of funds. If the agent agrees with a lender to make payments to the borrower before receiving funds from that lender and the agent does not receive funds from that lender in respect of such a payment, the borrower must refund the amount to the agent and such lender (or the borrower if the lender fails to do so) must indemnify the agent on demand against any funding costs incurred by the agent. III. SET OFF In addition to rights of set-off given to all Finance Parties 43, the agent may, after giving notice to any Party owing an amount to the agent under the Finance Documents, deduct an amount not exceeding such amount from any payment to that party which the agent would otherwise be obliged to make under the Finance Documents and apply such amount towards satisfaction of the amount owed 44. 40 Clause 23.2 (Amendment costs) 41 Clause 33.17 (Agent's management time) 42 Clause 36.4 (Clawback and pre-funding) 43 Clause 37 (Set-off) 44 Clause 33.18 (Deduction from amounts payable by the Agent) 8
Guide to Agency Protections A Loan Market Association Guide In syndicated loan agreements the role of an agent is intended to be solely mechanical and administrative in nature. Whilst the agent under a syndicated loan agreement has various duties, tasks and authorities, it is generally accepted in the syndicated loan market that so long as the agent carries out those functions with reasonable skill and care, the agent should be protected from any loss or liability in carrying out those functions. An LMA facility agreement therefore contains a number of protective provisions which seek to exclude the agent from any such loss and liability. The purpose of this guide is to provide an overview of the principal protections provided in an LMA facility agreement, and assist agents, arrangers, lenders and those agreeing loan documentation to identify the standard protections that an agent under a loan agreement would expect to benefit from. LMA contact T: +44 (0)20 7006 6007 F: +44 (0)20 7006 3423 lma@lma.eu.com www.lma.eu.com 2017 Loan Market Association. All rights reserved. Printed in the United Kingdom.