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CF082730073
THE ACT BORROWERS GUIDE TO THE LMA FACILITIES AGREEMENT FOR
LEVERAGED TRANSACTIONS
produced by
SLAUGHTER AND MAY
September 2008

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The Association of Corporate Treasurers, London, October 2008
Contents
INTRODUCTION 5
PART I: OVERVIEW 8
1. BACKGROUND TO THE LEVERAGED FACILITIES AGREEMENT 8
2. KEY POINTS FOR NEGOTIATION 12
PART II: COMMENTARY ON THE LEVERAGED FACILITIES AGREEMENT 18
PARTIES 18
CLAUSE 1: DEFINITIONS AND INTERPRETATION 20
CLAUSE 2: THE FACILITIES 41
CLAUSE 3: PURPOSE 42
CLAUSE 4: CONDITIONS OF UTILISATION 43
CLAUSE 5: UTILISATION - LOANS 49
CLAUSES 6 and 7: UTILISATION LETTERS OF CREDIT AND LETTERS OF CREDIT 51
CLAUSE 8: OPTIONAL CURRENCIES 55
CLAUSE 9: ANCILLARY FACILITIES 55
CLAUSE 10: REPAYMENT 57
CLAUSE 11: ILLEGALITY, VOLUNTARY PREPAYMENT AND CANCELLATION 59
CLAUSE 12: MANDATORY PREPAYMENT 61
CLAUSE 13: RESTRICTIONS 67
CLAUSE 14: INTEREST 69
CLAUSE 15: INTEREST PERIODS 70
CLAUSE 16: CHANGES TO THE CALCULATION OF INTEREST 70
CLAUSE 17: FEES 70
CLAUSE 18: TAX GROSS-UP AND INDEMNITIES 74
CLAUSE 19: INCREASED COSTS 76

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CLAUSE 20: OTHER INDEMNITIES 77
CLAUSE 21: MITIGATION BY THE LENDERS 78
CLAUSE 22: COSTS AND EXPENSES 79
CLAUSE 23: GUARANTEE AND INDEMNITY 81
CLAUSE 24: REPRESENTATIONS 83
CLAUSE 25: INFORMATION UNDERTAKINGS 111
CLAUSE 26: FINANCIAL COVENANTS 118
CLAUSE 27: GENERAL UNDERTAKINGS 138
CLAUSE 28: EVENTS OF DEFAULT 167
CLAUSE 29: CHANGES TO THE LENDERS 180
CLAUSE 30: RESTRICTIONS ON DEBT PURCHASE TRANSACTIONS/DEBT PURCHASE TRANSACTIONS 185
CLAUSE 31: CHANGES TO THE OBLIGORS 189
CLAUSE 32: ROLE OF THE AGENT, THE ARRANGER, THE ISSUING BANK AND OTHERS 191
CLAUSE 33: CONDUCT OF BUSINESS BY THE FINANCE PARTIES 192
CLAUSE 34: SHARING AMONGST THE FINANCE PARTIES 192
CLAUSE 35: PAYMENT MECHANICS 193
CLAUSE 36: SET-OFF 193
CLAUSE 37: NOTICES 194
CLAUSE 38: CALCULATIONS AND CERTIFICATES 195
CLAUSE 41: AMENDMENTS AND WAIVERS 195
CLAUSE 42: CONFIDENTIALITY 201
Schedule 1: The Original Parties 207
Schedule 2: Conditions Precedent 207
Schedule 3: Requests 208

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Schedule 4: Mandatory Cost Formula 208
Schedule 5: Form of Transfer Certificate 209
Schedule 6: Form of Assignment Agreement 209
Schedule 7: Form of Accession Letter 209
Schedule 8: Form of Resignation Letter 209
Schedule 9: Form of Compliance Certificate 209
Schedule 10: LMA Form of Confidentiality Undertaking 209
Schedule 11: Timetables 209
Schedule 12: Form of Letter of Credit 209
Schedule 13: Material Companies 209
Schedule 14: Agreed Security Principles 210
APPENDIX 1 Assumed Transaction 212
APPENDIX 2 Further information for ACT members 213

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THE ACT BORROWERS GUIDE TO THE LMA FACILITIES AGREEMENT FOR LEVERAGED TRANSACTIONS
INTRODUCTION
The LMA Senior Multicurrency Term and Revolving Facilities Agreement for Leveraged Transactions (the Leveraged Facilities Agreement) was first published in 2004. It was subsequently revised in December 2005, June 2007, February 2008 and, most recently, in September 2008. The purpose of this guide is to provide an overview of the Leveraged Facilities Agreement and to highlight certain key borrower issues arising from it of which corporate treasurers should be aware.
Whilst the Association of Corporate Treasurers (ACT) is closely involved in the settlement of the terms of the LMA facility agreements for investment grade borrowers (the Investment Grade Documents), the LMA did not seek the views or comments of the ACT on the terms of the Leveraged Facilities Agreement. The Leveraged Facilities Agreement is therefore a more lender-friendly document than the Investment Grade Documents and, importantly, is not endorsed by the ACT1.
The general format of the Leveraged Facilities Agreement will, however, be familiar to users of the Investment Grade Documents and certain of the boilerplate provisions are substantially the same. A number of these common provisions are explained in detail from a Borrower perspective in our existing ACT Guide to the LMA Documentation for Borrowers (last revised in June 2007, the ACT Borrowers Guide to the Investment Grade Documents, available from the ACT website at http://www.treasurers.org/loandocumentation). Relevant sections are cross-referenced in the text of this guide. Readers may also find the Introduction to Loan Finance, included in the International Treasurers Handbook 2008 (the Handbook), useful by way of background. Appendix 2 to this guide contains a table summarising further information available to ACT members which may be helpful in relation to particular provisions of the Leveraged Facilities Agreement.
This guide is in two parts:
Part I contains an overview of the Leveraged Facilities Agreement. It also contains a summary of certain key points for negotiation (which are explored in more detail in Part II).
Part II is a commentary on certain key provisions of the Leveraged Facilities Agreement (and an explanation of some key omissions). It provides background to the most commonly negotiated aspects of the document and includes a series of Borrower Notes highlighting particular issues which Borrowers may wish to discuss with Lenders.
1 The ACT is involved in the working party which develops the Investment Grade Documents, with the objective of balancing the interests of Borrowers and Lenders. The ACT endorses the Investment Grade Documents as a starting point for negotiations only and expects parties to negotiate changes in relation to individual transactions.

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References to the Leveraged Facilities Agreement in this guide are to the version most recently published by the LMA on 26th September 2008 and terms defined in the Leveraged Facilities Agreement have the same meanings in this guide.
NOTE
This guide is written in general terms and its application to specific situations will depend on the particular circumstances involved. Whilst this guide seeks to highlight certain issues that are regularly raised by Borrowers in relation to the Leveraged Facilities Agreement, it does not purport to address every issue that Borrowers could or should raise. The guide does not attempt to describe the most Borrower-friendly approach that may be taken in relation to any particular issue. In general, the observations relating to loan market practice in the guide are drawn with mid to large size transactions in mind and may not be appropriate or relevant to all types of transaction. What is achievable in any particular case will depend on a variety of factors including the identity of the Borrower and its investors, the identity of the Lenders, the size of the transaction, overall leverage and market conditions. In particular the guide has largely been written in the period July to early September 2008 and does not seek to address the implications of developments in the global financial markets in mid to late September 2008.
Readers should therefore take their own professional advice when using the Leveraged Facilities Agreement. This guide should not be relied upon as a substitute for such advice. Although Slaughter and May has taken all reasonable care in the preparation of this guide, no responsibility is accepted by Slaughter and May or any of its partners, employees or agents or by the ACT or any of its employees or representatives for any loss, however caused, occasioned to any person by reliance on it.
Slaughter and May September 2008

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PART I: OVERVIEW

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PART I: OVERVIEW
1. BACKGROUND TO THE LEVERAGED FACILITIES AGREEMENT
1.1 The LBO market in Europe
Before analysing the Leveraged Facilities Agreement from a Borrowers perspective, the backdrop against which it is to be negotiated should be considered briefly. During the two year period to summer 2007, investors in the European leveraged finance market saw continuing pressure on lending terms, fuelled by low interest rates, relatively low default rates and strong liquidity in the debt markets (in large part due to the increasing significance of non-bank lenders such as hedge funds, CDOs, CLOs and other types of institutional investor). Liquidity was such that many deals were oversubscribed, resulting in pricing and structural reverse flex.
During this period, financing structures evolved to meet the demands of the changing investor base. Borrowers, in particular the large private equity houses, took full advantage of the available liquidity and both lending terms and financing structures reflected their bargaining strength.
At the time of writing, this picture has changed. The market remains in the grip of a credit crunch triggered by the US sub-prime mortgage crisis and for larger deals in particular, available leveraged lending terms are very different from those that might have been achievable in early 2007. Pricing has gone up, deals are smaller and