Facility Agreement German

As a general rule, facility agreements provide for „first-demand“ payment guarantees, under which the guarantor must make payment only at the invitation corresponding to the formalities agreed in advance, but according to which, in principle, the guarantor is not entitled to prove that the guaranteed event did not occur. Under German case law, which is still under development, only banks, credit institutions and internationally active companies can, on the first request, provide a guarantee. A first-demand guarantee given by an organisation which, under those rules, is not entitled to provide a guarantee on first application can therefore constitute only a simple guarantee of payment. The process of financing an acquisition, which is in addition to the (quasi) required share of equity, is usually divided into three phases: the process usually begins with a roadmap that summarizes at least the fundamental economic conditions of the proposed financing. On the basis of the roadmap, the facility agreement is established, negotiated and signed. On the date of delivery or cancellation of the conditions precedent of the facility contract, the bank (or banking consortium) makes available the funds necessary for the payment of the purchase price. Facility agreements throughout Europe are generally based on standard documentation from the Loan Market Association (LMA) in London, which is governed by English law. In addition, since 2007, the LMA has published a German version that is specially adapted to the requirements of German law and banking practice, while maintaining the form and content of the English LMA documents. The choice of English or German law as the applicable law of the establishment contract as well as the choice of English or German depend on the context of the parties involved, the syndication requirements and the responsibility for the inclusion of the (group) objective.

In a judgment delivered in 1992, the Federal Court of Justice (Bundesgerichtshof – BGH) treated a lender as a shareholder when (i) the borrower`s shares were mortgaged to the lender and the rights to dividends, compensation in the event of the cessation of a partner, proceeds of liquidation in liquidation and proceeds of disposal in the event of a transfer of shares were transferred or mortgaged to the lender, (ii) the borrower`s shareholders have agreed to obtain the lender`s prior consent before exercising certain membership rights and (iii) the borrower has accepted the lender`s request for a consultant chosen by the lender to take over the de facto management of the borrower. This decision has created some uncertainty within the legal community as to whether the usual covenants in the event of the borrower`s insolvency in facility agreements combined with foreclosures can lead the lender to be considered a shareholder, with the result that the lender`s loans are subordinated. However, this view has become less and less likely, since the Federal Court of Justice stated in another 1998 decision that a person`s influence over a business does not entail negligence if that power is based solely on economic strength or contractual obligations. These documents (the term of which includes, context permitting, text, content, spreadsheet with macros and electronic interfaces, as well as their underlying assumptions, conversions, formulas, algorithms, calculations and other mathematical and financial techniques) are made available to members of the Loan Market Association, in accordance with the by-laws of the Loan Market Association (a copy of which is available here); to facilitate the documentation of transactions in credit markets. . . .

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