Module 1 · Chapter 1

What Debt Finance Is

Before the jargon, the idea. What it means for a company to borrow serious money, why boards choose debt over equity, what the menu of loan facilities looks like — and the journey a loan travels from first phone call to final repayment.

≈ 18 min read 10-question test No prior knowledge assumed

1.1Borrowed money, in one paragraph

A company can raise money in exactly two ways. It can sell a piece of itself — issue shares, take on new owners, share future profits forever. Or it can borrow: take money now, promise to pay it back by a fixed date with interest, and give the provider no ownership at all. The first is equity; the second is debt. This course is about the second — specifically about loans, the contracts that document them, and the market habits that have grown around the standard forms. Almost every European corporate loan you will ever see is built on those forms.

Key point

A lender's world-view is different from a shareholder's, and it explains everything in this course. A shareholder shares the upside, so it can afford risk. A lender gets only its money back plus a margin — it never shares the upside, so it obsesses about the downside. Every clause you will meet — representations, covenants, events of default — is a tool a lender uses to see risk early and act before the money is gone.

1.2Why companies borrow

Boards borrow for reasons, and knowing the reason tells you what the loan will look like:

To buy something big. An acquisition needs a large amount, on a known date, with absolute certainty of availability. This is acquisition finance — our case study throughout: Atlas Payments Group plc, a London-listed payments group, borrows €35 million towards buying an Irish rival in a deal its team code-names Project Sunrise.
To smooth the everyday. Payroll runs monthly; customers pay when they pay. A working capital line that can be drawn, repaid and drawn again bridges the gaps.
To build. Long-term investment — platforms, factories, licences — funded by debt repaid out of the profits the investment generates.
To replace old debt. A refinancing: new loan in, old loan out — usually to get a better price, a longer tenor (the life of the loan), or looser terms.
Because equity is expensive. Debt is almost always the cheaper money: interest beats giving away a share of all future profits, and lenders take less risk so they charge less for capital. The catch is leverage: debt magnifies both good and bad years, because interest is owed whether or not profits show up.

1.3The debt menu

“A loan” is a family, not a single product. The distinctions you will use daily:

Shape	What it is	Typical job
Term loan	Drawn once (or in a few instalments), repaid to a schedule or in one bullet at maturity; once repaid, gone.	Acquisitions, capex, refinancings
Revolving credit facility (RCF)	A ceiling, not a lump: draw, repay, redraw as needed during its life — a corporate credit card with a lawyer.	Working capital
Overdraft / uncommitted line	On-demand, cancellable by the bank at will — cheap but unreliable.	Day-to-day wobble
Bond / note issue	Debt sliced into securities and sold to investors; disclosure-driven, trustee-run, a different documentation world.	Large, rated borrowers
Private credit	Loans from funds rather than banks — same documents, different lender psychology.	Leveraged and mid-market deals

Then there is the question of how many lenders. A bilateral loan is one bank, one borrower. A club deal is a handful of relationship banks, each signing the same agreement. A syndicated loan is the full machine: one or more banks (arrangers) put the deal together, a group of lenders each takes a slice, and an agent runs the administration. The borrower deals with one counter rather than ten. Amounts too big or too risky for one balance sheet get spread across many — and almost everything in the market-standard architecture exists to make that sharing work.

Example — the Sunrise facility

Atlas has agreed to pay €42 million for Solaris Digital Assets Europe Limited, an Irish crypto-asset firm, buying it from its owner Meridian Fintech Ventures Limited. It needs €35 million of that on completion day — the balance comes from its own cash — plus headroom for the combined group's working capital. One agreement delivers both: a €35m term facility (drawn once, at completion, bullet repayment after five years) and a €5m revolver. Both are lent by a three-bank club — Caldermere, Baltra and Vantry — with Caldermere arranging the deal and acting as agent. That structure, two facilities inside one document, is as standard as it gets.

1.4The paper: one agreement, many lenders

Legally, a loan is just a contract — no shares move, no register is stamped. Everything therefore lives in the drafting, and the market long ago concluded that negotiating every loan from a blank page was madness. For decades the market has worked from published recommended forms that everyone starts from; lawyers negotiate the deal-specific parts and leave the plumbing alone. Standardisation is not laziness — it is what makes loans tradeable: a lender buying into a loan it has never seen can trust that clause 22 does what clause 22 always does. (The market's standard forms are their publishers' copyright; the training agreement on this site is an original simplified text built on the same architecture.)

Here is the beating heart of our training document — notice how it makes one facility out of many lenders' separate promises:

Clause 2.1The Facilities

“Subject to the terms of this Agreement, the Lenders make available: (a) to the Company, a euro term loan facility (“Facility A”) in a maximum aggregate amount of €35,000,000; and (b) to the Company, a euro revolving credit facility (“Facility B”) in a maximum aggregate amount of €5,000,000.”

Read in the Facility Agreement →

Two sentences later comes a clause juniors overlook and partners never do: each lender's obligations are several, not joint. If Vantry fails to fund its €8 million, that is Atlas's problem, not Caldermere's — no lender stands behind another. The syndicate is a convoy, not a partnership.

1.5The shape of a financing

The lifecycle of a financing. The two legal “big bangs” are signing (commitments become binding) and drawdown (money actually moves) — separated, like an M&A deal, by conditions.

If that rhythm looks familiar from our M&A course, it should: sign first, satisfy conditions, then perform. In lending the gap has its own name — conditions precedent — and its own chapter (Chapter 14).

1.6The language of lending

Term	What it means
Facility	The lender's commitment to lend up to an amount on agreed terms — the product, as opposed to any particular Loan drawn under it.
Utilisation / drawdown	Actually taking the money. See clause 5 of the Sunrise facility.
Commitment	Each lender's promised maximum share. Schedule 1 lists who committed what.
Margin	The lender's return over the benchmark rate — Sunrise pays EURIBOR + 2.75% on the term loan (definition).
Tenor	How long the loan runs. Sunrise: five years.
Bullet / amortising	Repay everything at maturity vs repay in instalments along the way.
Covenant	A promise about behaviour or numbers during the life of the loan.
Event of Default	A trigger letting lenders cancel, accelerate and demand — the loan's emergency brake.
Refinancing	Repaying a loan with a new loan — how most loans actually end.

Watch out

“Commitment” and “Loan” are not synonyms, and the difference bills real money: the commitment fee runs on committed-but-undrawn amounts precisely because a binding promise to lend costs a bank capital even before a cent moves. When a partner asks “what's drawn?”, they are asking about Loans, not Commitments.

1.7Where you fit in

On a financing, the junior lawyer typically: builds and owns the conditions precedent checklist (the deal's true critical path — Chapter 14 is yours); collects and verifies the CP documents; drafts board minutes, officer's certificates and utilisation requests; proof-reads the facility agreement, checks that defined terms are used consistently and that every cross-reference survives each renumbering; and builds in the riders the seniors negotiate. The same is true in-house — treasury teams and their lawyers run refinancings end-to-end. None of this is decoration: on drawdown morning, the deal completes when your checklist says it does.

Ready? Test yourself, then meet the cast — arrangers, agents and the syndicate — in Chapter 2.