Commitment Letters in Commercial Loans Borrower and Lender Strategies to Negotiate and Enforce Binding Loan Commitments

Similar documents
Structuring Commercial Loan Term Sheets, Proposals and Commitment Letters: Key Terms for Lenders and Borrowers

Commitment Letters in Commercial Loans Borrower and Lender Strategies to Negotiate and Enforce Binding Loan Commitments

Opinion Letters in Commercial Real Estate Best Practices to Minimize Risk When Crafting Third Party Opinions on Loans and Acquisitions

Completion Guaranties in Construction Lending: Key Provisions for Lenders and Guarantors

Mezzanine Lending: Overcoming Lender Risks to Protect ROI

Structuring Preferred Equity Investments in Real Estate Ventures: Impact of True Equity vs. "Debt-Like" Equity

Key Commercial Lease Provisions and SNDAs That Concern Lenders in Mortgage and Leasehold Financing

Structuring Commercial Loan Documents to Protect Non-Affiliated Lenders

Interest Rate Hedges in Real Estate Finance: Placing Swaps, Caps, and Collars on Floating Rate Loans

and Waivers After Default Crafting Forbearance Agreements That Minimize Lender Liability and Bankruptcy Risks

Distressed Loan Workouts: How Equity Cure Rights Work, Negotiating Loan Restructuring and Forbearance Agreements

Best Efforts and Commercially Reasonable Efforts in M&A Agreements: Drafting and Interpretation Challenges

Creatively Completing The Capital Stack: Real Estate GP Private Equity Funds

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Asset-Based Lending: Navigating Borrowing Base, Article 9 Collateral Issues, and Key Loan Documentation Provisions

Structuring Leveraged Loans After Tax Reform: Concerns for Multinational Entities

UCC Article 9 Blanket Asset Lien Exclusions and Purchase Money Security Interests

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Financing Multi-Family Housing: Structuring the Low Income House Tax Credit and Tax-Exempt Bonds Documenting Transactions for Investors and Developers

Bank Affiliate Transactions Under Scrutiny Complying With Regulation W's Complex Restrictions on Business Dealings with Affiliate Institutions

Insurance Coverage for Statutory and Liquidated Damages and Attorney Fees: Policyholder and Insurer Perspectives

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Agreements Among Lenders in Unitranche Lending: Structural Issues and Current Trends

Structuring Credit Facilities for Private Equity Funds: Subscription, NAV and Hybrid Loans

Securities Accounts and Other Investment Property Establishing Control Under the UCC to Perfect Security Interests in Special Collateral Types

Builder's Risk Insurance for Construction Projects: Legal Issues Evaluating Scope of Coverage and Resolving Coverage Disputes

Structuring Incremental Loan Facilities: Key Terms, Most Favored Nation Provisions and Incremental Equivalent Agreements

Structuring Equity Compensation for Partnerships and LLCs Navigating Capital and Profits Interests Plus Section 409A and Tax Consequences

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

ERISA Considerations in Structuring Credit Facilities with Private Investment Funds

Commercial Lease Negotiations: Property and Liability Insurance, Proof of Coverage, AI and Loss Payee Issues

for Landlords and Tenants Negotiating Insurance, Indemnity and Mutual Waiver of Subrogation Provisions

Clearing Title for Defects Due to Mortgage-Related Issues, Legal Description Errors, and Foreclosure

Tax Strategies for Real Estate LLC and LP Agreements: Capital Commitments, Tax Allocations, Distributions, and More

M&A Buyer Protection Beyond Indemnification and Escrows

Acquiring Real Estate From a Bankrupt Seller: Legal Issues Evaluating Acquisition Options and Navigating Complex Bankruptcy Court Procedures

SBA Lending: Documenting, Closing and Servicing 7(a) and CDC/504 Loans

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features: Brian E. Hammell, Esq., Sullivan & Worcester, Boston

Uninsured and Underinsured Motorist Claims: Leveraging Insurance Stacking

Asset Sale vs. Stock Sale: Tax Considerations, Advanced Drafting and Structuring Techniques for Tax Counsel

UCC Article 9 Blanket Asset Lien Exclusions and Purchase Money Security Interests

Covenant-Lite Loans: Recent Trends for U.S. Middle Markets and European Markets

Fraudulent Conveyance Exposure for Intercorporate Guaranties, Integrated Transactions and Designated-Use Loans

Allocating Risk in Real Estate Leases: Contractual Indemnities, Additional Insured Endorsements and Waivers of Subrogation

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Construction OCIP/CCIP Insurance Programs: Potential Coverage Gaps and Other Coverage Pitfalls

Cash Management Structures, Waterfall Provisions and Reserves in Commercial Real Estate Finance Transactions

QDRO Drafting Boot Camp: Preparing QDROs for 401(k)s and Similar Defined Contribution Plans

High Volatility Commercial Real Estate Loans: Guidance for Developers and Lenders on HVCRE Rules and Loan Covenants

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

M&A Indemnification Deal Terms: 2017 Survey Results

Wrap Insurance for Construction Projects Understanding Scope of Coverage and Resolving Coverage and Indemnification Disputes

ERISA Retirement Plan Investment Management Agreements: Guidance for Plan Sponsors to Minimize Risks

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Real Estate Joint Ventures: Opportunities and Legal Risks Strategies to Negotiate and Structure the JV Operating Agreement

Allocating Operating Expenses in Commercial Real Estate Leases: Negotiating Strategies for Landlords and Tenants

Construction Subcontractor Default Insurance: A Viable Alternative to Performance Bonds?

Property Management and Leasing Agreements: Key Provisions for Multi-Family, Office, Retail and Industrial Properties

Exercising Setoff and Recoupment Rights in Bankruptcy

Data Breaches in ERISA Benefit Plans: Prevention and Response

UCC Article 9 Update on Searching and Filing: Best Practices for Secured Lenders Under the Amended Rules

Structuring Financial Covenants, EBITDA, Events of Default and MAC Clauses in Loan Documents Maximizing Borrower Protection and Lender Remedies

VA Benefits and Medicaid Eligibility

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features: James O. Lang, Shareholder, Greenberg Traurig, Tampa, Fla.

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Tax Challenges for NPO Counsel: Excess Benefit Transactions for Executive Comp and Other Financial Dealings

Survivor Benefit Plans and Military Divorce: Defending Against or Claiming Former-Spouse SBP Coverage

Acquiring a Corporate Subsidiary or Division Strategies for Buyers and Sellers in Carveout Deals

Bankruptcy Section 506(c) Surcharge on Secured Collateral

UCC Article 9 Update: Searching and Filing Under New Amendments

IP Agreements: Structuring Indemnification and Limitation of Liability Provisions to Allocate Infringement Risk

Universal Health Services v. Escobar: Avoiding Implied Certification Liability Under FCA

Renewable Energy and Corporate PPAs: Overcoming Regulatory, Financing, Intercreditor, Tax Challenges

Solar Securitization: The Emergence of a New Funding Structure

Drafting Asset Purchase Agreements: Reps, Warranties, Covenants, Conditions, Indemnity and Other Key Provisions

New Section 199A: Structuring Real Estate Transactions to Take Advantage of the Qualified Business Income Deduction

Presenting a live 110-minute teleconference with interactive Q&A

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Structuring Equity Compensation for Partnerships and LLCs Navigating Capital and Profits Interests Plus Section 409A and Tax Consequences

IRC Section 338(h)(10) Election

Drafting Shareholder Agreements for Private Equity M&A Deals

Commercial Loan Guaranties: Drafting and Enforcing Corporate and Personal Guaranties and Non-Recourse Carve-Outs

Private Equity Waterfall and Carried Interest Provisions: Economic and Tax Implications for Investors and Sponsors

Leveraging Earnings-Stripping Regs for Foreign Investments: Maximizing Tax Savings, Minimizing IRS Scrutiny

UCC Issues in Mezzanine and Mortgage Loans: Using LLC Equity Interests and Deposit Accounts as Collateral

ERISA Compliance and Monitoring 401(k) Investments: Safe Harbor Rules and Appointing Advisers

Negotiating Reserve Provisions in Real Estate Loan Transactions

Scott J. Bakal, Partner, Neal Gerber & Eisenberg, Chicago Robert C. Stevenson, Attorney, Skadden Arps Slate Meagher & Flom, Washington, D.C.

Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

Corporate Governance of Subsidiaries: Board Roles and Responsibilities, Interplay With Parent Board, Liability Risks

Using Partnership Flips to Finance Renewable Energy Projects: Evaluating Tax Risks, Navigating IRS Safe Harbors

Private Investment Funds and Tax Reform

FCPA Due Diligence in M&A: Leveraging the New DOJ Opinion Procedure Release

Swaps in Loan Transactions: Coordinating Loan Document Terms with the ISDA Master Agreement

30(b)(6) Depositions in Insurance Coverage and Bad Faith Litigation Preparing and Responding to Notices of Corporate Representative Depositions

Paul W. Hespel, Partner, Pepper Hamilton LLP, New York Joseph W. Price, Member, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC, New York

Using Partnership Flips to Finance Renewable Energy Projects: Evaluating Tax Risks, Navigating IRS Safe Harbors

Transcription:

Presenting a live 90 minute webinar with interactive Q&A Commitment Letters in Commercial Loans Borrower and Lender Strategies to Negotiate and Enforce Binding Loan Commitments THURSDAY, APRIL 28, 2011 1pm Eastern 12pm Central 11am Mountain 10am Pacific Td Today s faculty features: Eric Goodison, Partner, Paul Weiss Rifkind Wharton & Garrison, New York Aric T. Stienessen, Hinshaw & Culbertson, Minneapolis Pauline M. Stevens, Partner, Morrison & Foerster, Los Angeles The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Conference Materials If you have not printed the conference materials for this program, please complete the following steps: Click on the + sign next to Conference Materials in the middle of the left- hand column on your screen. Click on the tab labeled Handouts that appears, and there you will see a PDF of the slides for today's program. Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon.

Continuing Education Credits FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: Close the notification box In the chat box, type (1) your company name and (2) the number of attendees at your location Click the blue icon beside the box to send

Tips for Optimal Quality Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory and you are listening via your computer speakers, you may listen via the phone: dial 1-866-869-6667 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

Commitment t Letters in Commercial Loans Borrower and Lender Strategies to Negotiate and Enforce Binding Loan Commitments April 28, 2011 100PM 1:00 230PME 2:30 Eastern Standard dtime Aric T. Stienessen Pauline M. Stevens Eric Goodison

Presenters Pauline M. Stevens, Partner Morrison & Foerster, Los Angeles She represents lenders throughout the credit cycle of financial transactions. She regularly works on syndicated and bilateral leveraged, multicurrency, project, and public financings, derivatives, workouts, and restructurings. She has worked with agricultural businesses, chemical manufacturers, energy companies, entertainment companies, governmental entities, healthcare companies and many others. pstevens@mofo.com 213.892.5406 6

Presenters Eric Goodison, Partner Paul Weiss Rifkind Wharton & Garrison LLP, New York He has over 20 years of experience as a financing lawyer. He represents domestic and international clients in their borrowing and lending and other financing transactions, including acquisitions, divestitures, and restructurings. He has significant expertise in structuring, negotiating and consummating all types of leveraged financings. egoodison@paulweiss.com 212.373.3292 7

Presenters Aric T. Stienessen, Associate Hinshaw & Culbertson LLP, Minneapolis He represents lenders, investment banks and borrowers in commercial finance transactions. He also represents businesses and real property developers in sales and purchase transactions involving commercial real property, and handles transactions involving mergers, acquisitions, divestitures and corporate organization and governance. astienessen@hinshawlaw.com 612.334.2504 8

Outline I. Legal developments A. Recent case law trends Amcan Holdings, Inc. v. Canadian Imperial Bank of Commerce, 894 NYS 2d 47 (N.Y. App. Div. 1st Dep t Feb. 4, 2010) B. Teachers Insurance C. Copeland D. Other Relevant Case Law II. Structure A. Binding or nonbinding B. Conditions III. Negotiating key terms A. General scope of terms B. Loan amount C. Collateral D. Interest rate E. Prepayment penalty F. Guaranties G. Financial i covenants H. Casualty and condemnation proceeds I. Default provisions J. Affirmative and negative covenants K. Other considerations 9

Outline Cont. IV. Impact of Credit Crisis on enforcing commitments and resolving disputes A. Credit Suisse et al. vs. Huntsman B. New customary terms V. Questions and Answers 10

I. Legal Developments A. First National Mortgage Co v. Federal Investment Realty Trust, 631 F. 3d 1058 (9 th Cir. 2011) A. Final Proposal B. The above terms are hereby accepted by the parties subject only to approval of the terms and conditions of a formal agreement. B. Amcan Holdings, Inc. v. Canadian Imperial Bank of Commerce, 894 NYS 2d 47 (N.Y. App. Div. 1st Dep t Feb. 4, 2010) Two term sheets provided that the credit facilities: will only be established upon completion of definitive documentation containing terms and conditions in term sheet and other terms reasonably required by CBIC. Conditions precedent were usual and customary for transactions of this type. 11

I. Legal Developments Cont. Amcan term sheets established: Line of Credit Amount Amortization Interest and Fees Collateral (including pledge of equity in one of the borrowers) Definitions Key Terms 12

I. Legal Developments Cont. Amcan: Not an enforceable contract, because: Intent of the parties was not to form a contract (subject to terms required by the lender, definitive documents) No explicit statement intending to be bound Term sheets contemplated later agreements 13

I. Legal Developments Cont. C. Teachers Insurance and Annuity Association Of America v. Tribune Company, 670 F. Supp. 491 (SD NY 1987). Two types of preliminary i contracts: t fully negotiated t and those still to be negotiated. First type includes contract where there is an agreement to negotiate in good faith additional and customary terms. Second type does not carry duty to continue to negotiate. 14

I. Legal Developments Cont. D. Copeland v. Baskin Robbins U.S.A., 117 Cal. Rptr. 2d. 875 (Cal. Ct. App. 2002) Letter agreement specified terms for selling manufacturing facility and product supply agreement, including: Pi Price Non-refundable deposit Agreement regarding co-packing agreement to be determined 15

I. Legal Development Cont. Copeland Although the parties failed to reach agreement on the co-packing agreement, the Court found a binding contract had been formed, because: Parties contracted to negotiate in good faith Covenant of good faith and fair dealing applied Damages measured by injured party s reliance on agreement to negotiate. 16

II. Structure A. Binding or Nonbinding 1. Lender s Perspective a. Lender s fees and expenses, including attorneys fees, paid regardless of whether loan closes 2. Borrower s Perspective a. Trade off underwriting fees and grant of exclusivity vs certainty of funds b. Certain transactions require a fully underwritten commitment (acquisitions), while others may not (dividends, refinancing) c. Expenses paid only at close B. Conditions 1. Lender s Perspective a. No material adverse change b. Approval from participants or syndicates c. Be mindful of tying arrangements 2. Borrower s Perspective a. Depends on fully underwritten vs best efforts, general rule the fewer the better -- need to understand Flex terms to see if commitment is really a disguised best efforts 17

II. Structure Cont. b. Sometimes borrower wants lender to have an out so they have a transaction out very dangerous strategy c. Best Efforts deal subject to lenders coming in on market clearing terms so limiting conditions is potentially less important d. Underwritten deal want an exhaustive list (avoid wording such as to include or including ) and as narrow and as objective as possible with any lender determinations i made by commitment party and not syndicate (both a cosmetic issue for seller in an acquisition and an economic issue if reverse break fee on financing) Hot button issues: 1) Due diligence 2) Maximum closing leverage 3) Solvency certificate or opinion; objective vs subjective standard 4) Outside date and marketing or syndication period 5) Approval of financial statements 6) Limiting closing representations to Specified Representations matching acquisition agreement 7) Acquisition Agreement amendments and approval 18

III. Negotiating Key Terms A. General Scope of Terms 1. Need further negotiations, ordinary & customary definitive documentation 2. Identify key parties (Lender/group, servicer, borrower, guarantors) 3. Terms unique or controversial to particular loan B. Loan Amount 1. Lender s Perspective a. Not to exceed b. All advanced and accruing interest, though possibly subject to control and disbursement c. Basis for fees 2. Borrower s Perspective a. Commitment to cover full amount necessary watch terms like up to b. ABL potential ti uncertainty t over ultimate t amount at time of close due to: i. Fluctuations in borrowing base assets ii. Field Audits to be done iii. Eligibility criteria to be negotiated iv. Reserves v. Minimum Availability or Liquidity at close 19

III. Negotiating Key Terms Cont. c. Ability for Incremental Facilities C. Collateral 1. Lender s Perspective a. Cross-collateralize b. Releases and substitutions c. Priority and intercreditor and subordination agreements d. Access agreements 2. Borrower s Perspective a. Negotiate exceptions or identify categories leaseholds, immaterial collateral b. Timing of perfection Sungard post closing language for non stock/ucc collateral c. Intercreditor if multiple secured commitments (1st/2nd lien structure or ABL/Term crossing lien structure), outline key intercreditor terms (priority, standstill, etc.) 20

III. Negotiating Key Terms Cont. D. Interest Rate 1. Lender s Perspective a. 360 day convention b. Default interest upon default occurrence (vs. continuing/uncured default) 2. Borrower s Perspective a. 365 day for Base Rate b. Default Rate only on overdue, only if required, other mitigation c. Payment periods quarterly vs monthly for non Libor loans 21

III. Negotiating Key Terms Cont. E. Prepayment Penalty 1. Lender s Perspective a. Amount, frequency, timing, and notice b. Due upon acceleration 2. Borrower s Perspective a. Exceptions involuntary acts such as excess cash, casualty events b. Make Whole better than a no call c. Soft Calls designed to protect against downward repricing i. Triggers repayment with low cost debt ii. Time 1 year iii. Premium 101 iv. Flex vs. commitment term 22

III. Negotiating Key Terms Cont. F. Guaranties 1. Lender s Perspective a. Payment and collection b. Secured or Unsecured c. Standstill 2. Borrower s Perspective a. Limit to domestic entities, avoid a 956 material cost analysis b. Consider unrestricted t concept c. Stop chain at one level above borrower, so any super hold co is unrestricted 23

III. Negotiating Key Terms Cont. G. Financial Covenants 1. Lender s Perspective a. Compliance certificates b. Understand metrics (EBIT vs. Gross Sales vs. Cash) 2. Borrower s Perspective a. Agree cushion to plan and perhaps identify plan b. Consider setting levels or annual levels with mid year stepdowns TBD c. Consider asking for Equity Cure right 24

III. Negotiating Key Terms Cont. H. Casualty and condemnation proceeds 1. Lender s Perspective a. Percentage damage b. Reinvest or repay the loan 2. Borrower s Perspective a. Definitely want a full reinvestment right b. Where to apply proceeds pending reinvestment cash collateral or pay down line 25

III. Negotiating Key Terms Cont. I. Default Provisions 1. Lender s Perspective a. Cross-default b. Grace periods and opportunities to cure 2. Borrower s Perspective a. Generally negotiated in loan documentation phase b. Identify the list of defaults, limit surprises later ( MAE ) c. Introduce concept of grace periods, cure rights and materiality thresholds 26

III. Negotiating Key Terms Cont. J. Affirmative and Negative Covenants 1. Lender s Perspective a. Keep in mind expectations of participants/syndicates b. Recognize the common covenants and specifically address covenants unique to the particular loan 2. Borrower s Perspective a. Generally negotiated in loan documentation phase b. Identify the covenants and introduce concept of materiality threshold and grace periods c. Greater specificity on financial reporting (how long and how often) and hedging d. On negative covenants, consider addressing key exceptions such as material acquisitions or acquisition flexibility generally, debt incurrence, dividend expectations, know or planned major asset sales, sale lease back transactions or major planned cap ex 27

III. Negotiating Key Terms Cont. K. Other Considerations A. Lenders Perspective 1. Length of commitment and protection on being shopped 2. Ability to successfully syndicate assistance, flex, assignment B. Borrower s Perspective 1. Length of commitment, time to complete transaction 2. Other material terms: amortization, voting rights, mandatory prepayments (equity sweeps, excess cash flow, asset sales), borrower or affiliate right to acquire debt, and restrictions on transfers, including to competitors and blacklists 28