Restricted Payments Credit Agreement

The loan agreement may also include provisions that the net proceeds from certain sales of eligible assets must be used either (1) to reinvest in assets useful in the borrower`s business or (2) repay the loan. Most exceptions to negative agreements are intended to allow the borrower to continue to operate properly, given the broad nature of the prohibitive provisions. In other cases, it is recognized that, during the term of the loan, the borrower may be forced to take certain measures, which are otherwise prohibited, such as borrowing or selling additional assets. B, to respond to market developments. When these contingencies are incorporated into the loan agreement, they are generally narrowly adapted or limited (either in dollars or in reference to a financial ratio). However, with respect to bilateral loans to small borrowers, lenders often prefer to include only exemptions limited to negative agreements and instead choose that the borrower seek consent or change each time he wishes to engage in a prohibited activity. For lenders, investments (including loans) in other persons or entities (1) mean that cash flows outside the credit group, where the lender is not directly entitled to it and (2) that the excess money that could have been used to repay the loan is used for another, perhaps speculative, purpose. To remedy this situation, the investment agreement prohibits the borrower from making investments, including loans, advances, stock purchases, bond purchases and asset acquisitions. Exceptions to this prohibition are often: loan contracts often include a number of other agreements, including, but not limited, the following: Below you will find an overview of some negative agreements that are usually present in credit contracts. For an unsecured lender, the existence of a pawnbroker means that another creditor is entitled to the borrower`s assets, which is the lender`s. In the case of a secured lender, other pawn rights may influence the lender`s priority within the capital structure and grant other creditors a competing right to the borrower`s assets.

Negative agreements, which generally apply to the borrower and each of its consolidated subsidiaries, generally begin with a blanket ban before listing certain exceptions. The scope of these prohibitions and exceptions depends on the size and nature of the loan in question, the creditworthiness of the borrower and the relative bargaining power, the setting up of the loan and the lender`s risk-taking. For lenders, additional obligations include (1) additional capital and interest payments that reduce the amount of free cash flow for the lender`s loan service and (2) additional leverage that potentially weakens the lender (particularly to the extent that the lender is uninsured or underinsured) with respect to the underlying assets. In business loan contracts, negative agreements are restrictions and prohibitions on obtaining credit from the borrower as it was at the time of the lender that made its technical decision. To do this, negative commitments authorize the lender: limited payments are amounts paid to shareholders, including payments and repayments of equity or repurchases of the borrower`s equity units. For lenders, limited payments (1) mean that the cash that could be used to repay or serve the loan comes from the credit group and (2) that payments related to junior commitments – that is:

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