Glossary

A · B · C · D · E · F · G · H · I · K · L · M · N · O · P · Q · R · S · T · U · W

A

Acceleration

The lenders' right to cancel the facilities and demand every loan back at once. It needs a continuing Event of Default, and the Agent must act if the Majority Lenders direct it. Lenders threaten it more often than they use it, because it usually turns a problem into a loss. Clause 19.10 · Chapter 10

Agency fee

The yearly fee the borrower pays the Agent for running the loan. Its amount sits in a separate Fee Letter, not in the facility agreement. Clause 10.3 · Chapter 6

Agent

The bank that runs the loan for the lenders after signing. Every payment and notice passes through it, and it counts the lenders' votes. Its duties are mechanical: it judges nothing and owes no fiduciary duties. Clause 22.1 · Chapter 2 · Chapter 11

Amend-and-extend

An agreement to push back a loan's final repayment date instead of refinancing it, usually for a fee and a higher margin. Each lender decides for itself, because a later payment date needs every lender's consent. Clause 27.2 · Chapter 11

Amortisation

Repaying a loan in instalments, so the debt shrinks every year. It suits a borrower with steady income. Sunrise's term loan does not amortise, because it is repaid in one sum at the end. Chapter 7

Arranger (Mandated Lead Arranger, MLA)

The bank the borrower hires, by a mandate letter, to agree the terms and gather the lenders. Its work comes before signing. Afterwards it keeps its fee and is liable only for gross negligence or wilful misconduct. Clause 22.4 · Chapter 2

Assignment

Passing a lender's rights, such as the right to be repaid, to a buyer. A duty to lend cannot be assigned, so a lender that wants to leave a revolving facility completely uses novation instead. Clause 20.1 · Chapter 12

Availability Period

The window in which a facility can be drawn. Sunrise's term loan can be drawn until the purchase completes, or until the Long Stop Date if that comes first. The revolver stays open until one month before the Termination Date. Definition: Availability Period · Chapter 7

B

Basis points (bps)

The unit loan prices are quoted in. One basis point is a hundredth of a percentage point, so a 3% margin is 300 basis points. A cap on market flex is usually set in basis points. Chapter 4

Basket

An allowance below which the borrower may act without asking the lenders, such as selling assets up to a set amount a year. The measuring words decide whether a basket refills each year or caps the total at any one time. Clause 18.2 · Chapter 9

Bilateral loan

A loan from one bank to one borrower. It is quick and private, but limited to what one bank will lend. Chapter 1 · Chapter 3

Break Costs

What the borrower pays if it repays in the middle of an interest period and rates have fallen: the lender's loss on re-lending the money for the rest of the period. The margin is left out, so Break Costs never repay lost profit. Definition: Break Costs · Chapter 6

Bullet repayment

Repaying the whole loan in one sum at the end. Sunrise's term loan is a bullet: Atlas pays interest along the way and repays all €35m on the Termination Date. Clause 6.1 · Chapter 7

Business Day / TARGET Day

The days on which the agreement's short deadlines count. A Sunrise Business Day must be a day when banks are open in London, and also a TARGET Day, when the euro payment system is open. So count deadlines by the definition, not the calendar. Definition: Business Day · Definition: TARGET Day · Chapter 5

C

Certain funds

The protection that lets a buyer rely on its loan to pay the price. From signing to completion, the lenders may refuse the completion drawing only for a Major Default, an untrue Major Representation or illegality. Their other rights are suspended, not lost. Clause 4.3 · Chapter 4

Clean-Up Period

The 90 days after completion in which a fixable problem found only at the newly bought company is treated as not arising. Atlas must not have caused it, and it must not grow into a Material Adverse Effect. It never covers a Major Default. Definition: Clean-Up Period · Chapter 4

Club deal

A loan shared by a few of the borrower's own banks, each committing its own share from the start. A club keeps a deal quiet while it is negotiated. Sunrise is a club of three banks, with the same agreement and machinery as a large syndicate. Chapter 3

Comfort letter

A parent's letter saying it is its policy that a subsidiary will meet its obligations. English courts have treated such wording as a statement of present policy, not a promise. So it may give the lender no claim at all. Chapter 13

Commitment

A lender's binding promise to lend up to a stated amount. A Loan is money actually drawn. Interest runs on Loans, and the commitment fee runs on what is committed but not yet drawn. Definition: Commitment · Chapter 1

Commitment fee

The fee the borrower pays on money committed but not drawn, because a promise to lend ties up a bank's capital. In Sunrise it is 35% of the margin, so an idle €5m revolver costs €35,000 a year. Clause 10.1 · Chapter 6

Commitment letter

The banks' binding promise to lend on an attached term sheet, signed before the purchase contract. It is the quicker route to certain funds, used in auctions, and an interim facility agreement goes with it. Chapter 4

Committed facility

A facility under which each lender must lend when asked, subject only to the agreement's conditions. An uncommitted line, such as an overdraft, can be withdrawn at any time. Only committed money can back a promise to pay a purchase price. Chapter 3

Compliance Certificate

The certificate that goes with each set of accounts, signed by the chief financial officer. It sets out the financial covenant calculations with the working, so the lenders can check both ratios twice a year. Definition: Compliance Certificate · Chapter 9

Conditions precedent (CPs)

The documents the Agent must have before the borrower can draw, such as board minutes, a legal opinion and KYC evidence. They hold up the money, not the contract. The junior usually keeps the checklist. Schedule 2 · Chapter 14

Conditions subsequent

Items the Agent agrees to take after drawdown, by a fixed date, such as a certified translation. Missing the date is a breach, and it becomes an Event of Default unless it is put right within 15 Business Days. Chapter 14

Continuing

A Default is continuing until it is remedied or waived, so a breach that was put right or forgiven no longer counts. Most lender rights, such as a drawstop or acceleration, work only while a Default or Event of Default is continuing. Clause 1.2 · Chapter 5 · Chapter 10

Corporate benefit

The benefit a company must get from a deal before its directors approve it. A subsidiary guaranteeing its parent's loan needs a reason, such as use of the group's revolver, and the board minute must show the directors considered it. Chapter 13

Cost of funds

What it really costs a lender to raise the money it lends. Normally EURIBOR stands in for it. If the benchmark fails, each lender charges its own certified cost of funds plus the margin. Clause 8.4 · Chapter 6

Covenant (maintenance vs incurrence)

A promise the borrower keeps for the life of the loan. A maintenance covenant is a ratio tested on fixed dates, whatever the borrower does. An incurrence covenant is tested only when the borrower takes a step, such as borrowing more. Chapter 3 · Chapter 9

Cov-lite

A leveraged loan with no maintenance covenants, so no ratio is tested on fixed dates. It comes from lenders competing for large deals. Sunrise is not cov-lite: it keeps two maintenance tests. Chapter 3

Cross-default / cross-acceleration

Cross-default makes trouble under the borrower's other debt an Event of Default under this loan. The full version bites when another lender could accelerate. Sunrise takes the milder cross-acceleration route: €2m or more of other debt actually unpaid or actually called in. Clause 19.4 · Chapter 10

D

Day count (actual/360)

The rule for turning a yearly rate into interest. Euro loans count the actual days but treat the year as 360 days long, so a full year costs a little more than the headline rate. Sterling loans use a 365-day year. Clause 26.1 · Chapter 5

Default / Event of Default

An Event of Default is one of the events listed in clause 19, and it lets the lenders accelerate. A Default is wider: it also covers an event that will become an Event of Default after a grace period or a notice. Any Default stops new loans. Definition: Default · Chapter 5 · Chapter 10

Default interest

Extra interest on an overdue sum, one per cent above the normal rate, from the due date until payment. It prices a riskier debt rather than punishing the borrower, so English courts enforce it. Clause 8.3 · Chapter 6

Double materiality

Two materiality tests on one statement: one inside the representation and one in the Event of Default. Clause 19.3 already catches only a statement untrue in a material respect, so lenders resist a second test that filters the risk twice. Clause 19.3 · Chapter 8

Drawdown (utilisation)

Taking the money. The borrower sends a Utilisation Request, the lenders check the conditions, and each lender pays its share through the Agent. Utilisation is the drafting word, and drawdown is what people say. Definition: Utilisation · Chapter 7

Drawstop

The lenders' right to refuse new money while a Default is continuing or a repeating representation is untrue. They demand nothing back, but lend no more until the problem is fixed. A rollover can be refused only for an Event of Default. Clause 4.6 · Chapter 7

E

EBITDA

Earnings before interest, tax, depreciation and amortisation: roughly operating profit. Both Sunrise ratios use it, and it means whatever the definition says. Each cost left out as exceptional raises EBITDA and loosens both covenants. Definition: EBITDA · Chapter 9

Equity cure

A right for the owners to fix a failed financial covenant test by putting in fresh money, which the test then counts. Some leveraged loans have one. Sunrise does not, so a waiver is the only way out. Chapter 9

EURIBOR

The euro interbank offered rate: what banks pay to borrow euros from each other. It is fixed for each interest period on the Quotation Day. Sunrise charges EURIBOR plus the margin, and treats EURIBOR below zero as zero. Definition: EURIBOR · Chapter 6

F

Facility

A lender's promise to lend up to a fixed amount on agreed terms. One agreement can hold several. Sunrise holds two: a term loan and a revolving credit facility. Definition: Facility A · Chapter 1

Facility agreement

The loan contract: who lends how much, on what terms, with what protections and machinery. Americans call it a credit agreement. The Sunrise document, a term and revolving facilities agreement, is the one this workbook explains. The Sunrise agreement · Chapter 5

Fee letter

A private side letter that sets the amount of a fee, such as the arranger's or the Agent's. It keeps the arranger's pay out of an agreement that every lender and buyer reads. It is a Finance Document, so an unpaid fee is an Event of Default. Definition: Fee Letter · Chapter 4

Financial covenants

The ratios the borrower must keep, tested on fixed dates as an early warning. Sunrise sets two, Leverage no higher than three times and Interest Cover no lower than four times, tested twice a year. A failed test has no grace period, so the borrower needs a waiver. Clause 17.1 · Chapter 9

Financial Indebtedness

The agreement's full list of what counts as debt, from loans and bonds to finance leases and guarantees. It is drawn wide so that debt cannot be dressed up as something else. The ratios, the debt limit and cross-default all use it. Definition: Financial Indebtedness · Chapter 9

Financing condition

A term in a purchase contract letting the buyer walk away if its loan falls through. European sellers rarely accept one, so the buyer must have its loan committed before it signs. Chapter 4

Fixed and floating charge

The two main kinds of English security. A fixed charge holds named assets that the company cannot sell without the lender's consent. A floating charge covers changing assets, such as stock, which the company may trade freely, and it ranks behind preferential creditors. Chapter 13

Funds flow statement

The buyer's and seller's agreed map of every payment on completion day. The Agent follows it to send the loan to the right place, and it is one of the last conditions to be met. Schedule 2 · Chapter 14

G

Grace period

The time the borrower has to put a breach right before it becomes an Event of Default. Sunrise gives three Business Days for a payment missed by technical error and 15 for most other breaches. A failed financial covenant gets none. Clause 19.2 · Chapter 10

Guarantee (and guarantor)

A promise by another company to pay what the borrower owes. In Sunrise two operating subsidiaries guarantee Atlas's debt, so the lenders can claim directly against the companies that hold the value. Each Guarantor must pay on demand. Clause 14.1 · Chapter 13

H

Headroom

The gap between a financial ratio and its limit. It shows how far earnings could fall before a covenant test fails. Chapter 9

I

Illegality

If it becomes unlawful for one lender to keep lending, for example because of new sanctions, its commitment is cancelled and the borrower repays its share at the end of the interest period. The other lenders stay in. Illegality can stop even a certain funds drawing. Clause 7.1 · Chapter 7

Increased costs

A clause making the borrower pay if a new law or rule after signing makes a loan more expensive for a lender, such as stricter capital rules. Rules already announced at signing are excluded, because the lenders priced them in. Clause 12 · Chapter 5

Information undertakings

The borrower's promises to keep the lenders informed: audited accounts within 120 days of the year end, half-year accounts within 90 days, a Compliance Certificate with each, and prompt notice of any Default. Lenders cannot act on trouble they cannot see, so a missed deadline is a breach. Clause 16 · Chapter 9

Interest cover

Earnings compared with the interest bill: can the business pay its interest with room to spare? Sunrise requires EBITDA of at least four times its net finance charges. Clause 17.1 · Chapter 9

Interest Period

A stretch of time for which a loan's rate is fixed. Atlas chooses one, three or six months, and three months applies if it chooses nothing. Interest is paid on the last day of each period. Definition: Interest Period · Chapter 6

Interim facility agreement

A short, binding loan signed with a commitment letter, so that the banks' commitment is real. It could fund completion, but it is meant never to be drawn, because the full agreement replaces it. Chapter 4

Investment-grade lending

Lending to strong companies that are unlikely to default. The loans are often unsecured, margins are low and a few maintenance covenants apply. Sunrise sits here. Chapter 3

K

KYC ("know your customer")

The identity checks the law requires each lender to run on its customer. Each lender runs its own, and the Obligors must supply the evidence. KYC is often the last condition precedent to arrive. Clause 16.5 · Chapter 2 · Chapter 14

L

Legal opinion

A formal letter from a law firm to the lenders confirming legal points: each Obligor exists, had power to sign, signed properly and is bound. It never says the borrower is a good risk. An opinion of lenders' counsel is a condition precedent. Schedule 2 · Chapter 2

Lender of record

The lender that is party to the agreement and on the Agent's register. It receives the notices and casts the votes. In a sub-participation the risk moves to someone else, but the lender of record stays the same. Chapter 12

Leverage

Debt compared with earnings: is the debt too big for the business to repay? Sunrise requires Total Net Debt of no more than three times EBITDA, and exactly three times still passes. Definition: Leverage · Chapter 9

Leveraged finance

Lending to companies carrying heavy debt, often owned by private equity. It brings high margins and fees, security over almost everything, and often incurrence covenants only. Chapter 3

M

Major Default

One of the few Events of Default that can stop a certain funds drawing: non-payment, insolvency, insolvency proceedings, or unlawfulness and repudiation. Each must concern an Obligor, so trouble at the company being bought does not count. Definition: Major Default · Chapter 4

Major Representation

The Obligors' statements about their status, binding obligations, lack of conflict, and power and authority (clauses 15.1 to 15.4). Before completion, only one of these being materially untrue, a Major Default or illegality can stop the completion drawing. Definition: Major Representation · Chapter 4

Majority Lenders

Lenders holding more than two-thirds of the Commitments, counted by money, not heads. They decide most waivers and amendments, and can direct the Agent to accelerate. Some changes, such as a lower margin, need every lender. Definition: Majority Lenders · Chapter 11

Mandate letter

The letter by which the borrower hires its arranger. It says whether the arranger underwrites, and sets the ground rules: exclusivity, clear market, market flex, fees and an indemnity. Those parts bind from signature. Chapter 4

Margin

The lender's reward on top of EURIBOR, for credit risk, tied-up capital and profit. It stays fixed while EURIBOR moves. Sunrise pays 3% on the term loan and 2% on the revolver. Definition: Margin · Chapter 6

Market disruption

The fallback when EURIBOR fails. If it is unavailable, or lenders holding more than 35% of the loans say their funding costs more, each lender charges its own cost of funds plus the margin for that period. It is negotiated on almost every deal and almost never used. Clause 8.4 · Chapter 6

Market flex

A mandate letter right letting the arranger raise the margin or tighten terms if that is needed to sell the loan. Borrowers limit it with a cap, a duty to consult, and use only if the sale would otherwise fail. Chapter 4

Material adverse effect / material adverse change

Serious harm to the group's business or finances, to the Obligors' ability to pay, or to the documents' validity. The definition limits some representations, sets the bar in some undertakings, and is an Event of Default on its own. Courts read it narrowly. Definition: Material Adverse Effect · Clause 19.9 · Chapter 5 · Chapter 10

Meridian Fintech Ventures Limited

The seller of Solaris. It is not a party to the loan, but Atlas must pay it the price on completion whether or not the banks lend. That is why the loan is built for certain funds. Definition: Acquisition Agreement · Chapter 4

N

Negative pledge

The borrower's promise not to give any other creditor security over its assets, with small exceptions. It keeps the assets free for all the unsecured creditors, so nobody gets ahead of an unsecured syndicate. Clause 18.2 · Chapter 9 · Chapter 13

Novation

The way a lender passes on both its rights and its duty to lend. The old lender is released and the buyer steps in as if it had signed the agreement. Every party consented in advance, so a Transfer Certificate completes it. Clause 20.3 · Chapter 12

O

Obligor

The borrower or a guarantor: the companies that owe the money. In Sunrise they are Atlas and its two guarantor subsidiaries. Most promises in the agreement are given by each Obligor. Definition: Obligor · Chapter 2

P

Pari passu

Latin for “on an equal footing”. The borrower promises that this debt ranks equally with its other unsecured debt. It gives the lenders no priority, and protection against secured creditors comes from the negative pledge. Clause 15.9 · Chapter 8

Prepayment (voluntary / mandatory)

Repaying early. A voluntary prepayment needs three Business Days' notice and carries Break Costs but no penalty, so treasurers time it for the end of an interest period. Some events force it, such as illegality for one lender, or a change of control, when each lender may ask to leave. Clause 7.3 · Chapter 7

Pricing

The lenders' return as a package: the margin and the fees together. When bankers talk about pricing, they mean the margin and fees, not EURIBOR. Chapter 6

Primary syndication

The first sale of shares in a loan to other lenders, after an arranger has underwritten it. The arranger invites banks and funds with an information memorandum, and cuts each one back if demand is high. Chapter 4

Pro rata sharing

The sharing clause. A lender that recovers money from the borrower outside the Agent, by set-off or by suing alone, must hand the excess over its share to the Agent for sharing out. So no lender gains by racing ahead. Clause 23.1 · Chapter 11

Q

Quotation Day

The day EURIBOR is fixed for an interest period: two TARGET Days before the period starts. So everyone knows the rate before the period begins. Definition: Quotation Day · Chapter 6

R

Refinancing

Replacing an old loan with a new one, usually cheaper or longer. Most loans end this way rather than being repaid out of profits. Chapter 1

Repeating Representations

The representations made again on each Utilisation Request, each drawing and the start of each interest period. In Sunrise there are six: the four legal statements, pari passu and sanctions. The accounts, litigation and purchase-contract statements speak only at signing. Definition: Repeating Representations · Chapter 8

Representations

Statements of fact the Obligors make to the lenders. An untrue one stops new lending and is an Event of Default. A known problem is carved out of the statement's own words, because loans have no disclosure letter. Clause 15 · Chapter 8

Reservation of rights

A lenders' letter that names a Default, waives nothing and keeps every right alive while talks go on. It stops their normal dealings, such as collecting interest, being read as a waiver. Chapter 10

Revolving credit facility (RCF)

A facility the borrower can draw, repay and draw again until it ends. Each loan is repaid at the end of its interest period. Sunrise's Facility B is a €5m revolver for the group's everyday needs. Definition: Facility B · Chapter 3

Rollover Loan

A new revolver loan drawn on the day an old one is due, to repay it, so only the difference changes hands. The lenders can refuse it only for an Event of Default, so a small slip cannot cut off working capital. Definition: Rollover Loan · Chapter 3 · Chapter 5

S

Secondary market

Where lenders sell shares of loans after signing. Banks sell to free capital or to stay within limits, and funds buy, sometimes cheaply when a borrower is in trouble. Clause 20 sets the rules. Clause 20 · Chapter 12

Several obligations

Each lender promises only its own share. If one lender fails to lend, the others need not cover the gap, and the borrower's claim is against that lender alone. Clause 2.2 · Chapter 1

Snooze-you-lose

If a lender does not answer a consent request within ten Business Days, its Commitment is left out of the vote count. Silence is not a yes: the lender simply drops out of both sides. Clause 27.3 · Chapter 11

SPA (share purchase agreement)

The contract by which shares in a company are sold. In Sunrise, Atlas buys Solaris from Meridian under one, and the facility agreement calls it the Acquisition Agreement. Definition: Acquisition Agreement · Chapter 4

Structural subordination

The weak spot of lending to a holding company. The value sits in its subsidiaries, whose own creditors are paid first if they fail. Guarantees from the subsidiaries fix this, which is why Sunrise has them. Chapter 2 · Chapter 13

Sub-participation

A private contract by which a lender passes the risk of its share to someone else while staying the lender of record. The borrower is not asked, and the lender keeps the vote. Clause 20.4 · Chapter 12

Syndicated loan

A loan in which several banks each lend a share under one agreement. An arranger gathers the lenders and an agent runs the loan, so the borrower deals with one bank. Each bank promises only its own share. Chapter 1 · Chapter 2

T

Tenor

The life of a loan, from signing to the final repayment date. The Sunrise agreement does not use the word. It sets the end as the Termination Date, five years after signing. Definition: Termination Date

Term loan

A loan drawn once, or in a few drawings, and repaid on a schedule or in one sum. Money repaid cannot be borrowed again. Sunrise's Facility A is a €35m term loan for the purchase. Definition: Facility A · Chapter 3

Term sheet

The deal in a few pages of headings, agreed before the full agreement is drafted. On Sunrise it was not binding. Checking that each line reached the final agreement is a junior's task. Chapter 4

Transfer Certificate

The short form that completes a novation. The selling and buying lenders sign it, and the Agent signs for everyone else. On the transfer date the buyer steps in and the seller is released. Definition: Transfer Certificate · Chapter 12

U

Underwritten deal

A loan in which one bank, or a few, commits to the whole amount first and sells parts to other lenders later. The borrower gets certain money early, and the bank charges for the risk of not selling. Chapter 3

Utilisation Request

The notice by which the borrower asks for a loan: which facility, what date, how much and the first interest period. It must reach the Agent three Business Days ahead and cannot be withdrawn. It also confirms that the conditions to lending are met. Schedule 3 · Chapter 7

W

Waiver

The lenders' agreement not to treat a breach as a breach. Most waivers need the Majority Lenders and cost the borrower a fee. Most defaults end in a waiver, not in acceleration. Clause 27.1 · Chapter 10 · Chapter 11

Withholding tax / gross-up

Tax the borrower must deduct from an interest payment. The gross-up makes the borrower pay more, so the lender still receives the full amount. A lender that was never entitled to be paid without the deduction gets no gross-up. Clause 11.2 · Chapter 5

Working capital

The money a business needs for everyday bills, such as wages and suppliers, before its customers pay. Wages fall due every month, but customers pay when they pay, so the gap needs a revolver. Sunrise's revolver may fund it, but never the purchase price. Clause 3.1 · Chapter 3