This article provides an overview of key clauses in loan agreements and other facility agreements. It also examines the points to be considered in negotiating representations, pacts and payments from the perspective of the borrower and lender. Particular attention should be paid to the definition phase of the loan contract and the impact of these definitions on default events. The borrower may try to modify certain definitions to provide greater flexibility in complying with existing agreements or conditions, in order to avoid any action that leads to a default. A credit risk swap (CDS) is a transaction in which one party, the “buyer of the protection,” the other party, the “protection seller,” makes a number of payments over the term of the contract. In essence, the purchaser takes out insurance on the possibility for a debtor to experience a default event that would jeopardize his ability to meet his payment obligations. If a borrower believes that a default is likely, the borrower should discuss the situation in advance with the lender in order to request an amendment or waiver. A lender is probably more receptive to helping to work on a solution before a default occurs, as most lenders would rather have an organizing loan than participate in a restructuring or close guarantees, as these extreme results are costly and tedious and can deprive the lender of control, making the outcome uncertain. Borrowers should keep in mind that if the lender is willing to grant such an amendment or waiver, this is usually done at the borrower`s financial cost or requires certain concessions from the borrower. Legal representations are representations of the legal reality and the position of the borrower. You are talking about the borrower`s ability to meet their obligations under the loan agreement.

Legal representations are generally supported by documents such as certificates, licenses and others, such as the act of setting up a business. Common legal representations in loan contracts include statements that the borrower has the legal capacity to enter into the agreement that would be valid, binding and enforceable against the borrower, as well as statements on tax obligations related to the agreement.