Module 2 · Chapter 5

Anatomy of a Facility Agreement

A facility agreement is long, but it follows a simple plan. This chapter shows the plan, the definitions that decide when lenders can act, and the clauses that protect what they are paid.

≈ 12 min read 8-question test

In this chapter

  • How a facility agreement is laid out, and where to look first
  • The definitions that decide when the lenders can act
  • The clauses that make sure the lenders are paid in full

5.1A facility agreement in one paragraph

A facility agreement is the contract under which banks promise to lend. It is long, and the business deal is spread through pages of definitions and machinery. So experienced lawyers do not read it from the first page to the last.

They start with the contents page and place each clause in its part. Then they read the key definitions, and then the schedules. Keep the Sunrise facility agreement open beside this chapter.

Key point

Every facility agreement answers six questions:

  • How much can be borrowed, and in what form? (clause 2)
  • What may the money be used for? (clause 3)
  • What must be true before each loan is made? (clause 4)
  • What does the money cost? (clauses 8 to 10)
  • What must the borrower do, and not do, while the loan is out? (clauses 15 to 18)
  • What happens if things go wrong? (clause 19)

The rest is machinery that makes a group of lenders act as one.

Also in this chapter

  1. The ten parts of the agreement
  2. Default and Event of Default
  3. Why a rollover is harder to refuse than a new loan
  4. Business Day and Material Adverse Effect
  5. Tax and new regulation are the borrower's risk
  6. How payments flow
  7. Separate rights, one syndicate
  8. The schedules are working documents
  9. Your job

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