AN APPROACH TO WRITING LOAN AGREEMENT COVENANTS

1
AN APPROACH TO WRITING LOAN AGREEMENT COVENANTS
2
LOAN AGREEMENT FORMAT

• THE LOAN
• REPRESENTATIONS/WARRANTIES
• AFFIRMATIVE COVENANTS
• NEGATIVE COVENANTS
• CONDITIONS OF LENDING
• EVENTS OF DEFAULT
• REMEDIES

3
FOR EFFECTIVE COVENANTS

• IDENTIFY THE PERTINENT RISKS
• COVENANTS MUST BE SIMPLE AND EFFICIENT
• BORROWER MUST BE ABLE TO CONFORM

4
FUNCTIONAL OBJECTIVES OF LOAN COVENANTS

• FULL INFORMATION DISCLOSURE
• PRESERVATION OF NET WORTH
• MAINTAIN ASSET QUALITY

5
OBJECTIVES (CONT.)

• MAINTAIN ADEQUATE CASH FLOW
• CONTROL OF MANAGEMENT
• ASSURE A GOING CONCERN

6
GO OVER EXAMPLE COVENANTS TO RELATE A SAMPLE
WITH EACH FUNCTIONAL OBJECTIVE
7
(No Transcript)