A Loan Market Association GuideA Loan Market Association Guide

Guide to Agency ProtectionsMarch 2017

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ALOANMARKETASSOCIATIONGUIDE

AGUIDETOAGENCYPROTECTIONS

LoanMarketAssociation

10UpperBankStreet,LondonE145JJ

©LoanMarketAssociation2017

PublishedbytheLoanMarketAssociationinMarch2017

10UpperBankStreet,LondonE145JJ

Telephone:+44(0)2070066007

Fax:+44(0)2070063423

Email:lma@lma.eu.com

Website:www.lma.eu.com

Allrightsreserved.Nopartofthispublicationmaybereproduced,storedinanyretrieval

systemortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying,

recordingorotherwise,withoutpriorwrittenpermissionofthecopyrightholder,forwhich

applicationshouldbeaddressedinthefirstinstancetothepublishers.Noliabilityshall

attachtotheauthors,thecopyrightholderorthepublishersforlossordamageofany

naturesufferedasaresultofthereproductionofanyofthecontentsofthispublication.

Theviewsandopinionsexpressedinthispublicationaretheviewsoftheauthors.TheLoan

MarketAssociationandtheauthorshavemadeeveryefforttoensurethecompleteaccuracy

ofthetextbutnoneoftheLoanMarketAssociation,theauthorsorthepublisherscan

acceptanylegalresponsibilityorliabilityforanyerrororomissioninitscontents.

This"GuidetoAgencyProtections"isnotintendedtobecompletelycomprehensive.

Rather,itseekstoprovideanoverviewoftheprotectionsaffordedtoanagentunderLMA

facilitydocumentation.Mostimportantly,thispublicationisnotdesignedtoprovidelegalor

otheradviceonanymatterwhatsoever.

TheLoanMarketAssociation

TheLoanMarketAssociation(LMA)isthetradebodyfortheEurope,MiddleEastandAfrica

(EMEA)syndicated loanmarketandwas founded inDecember1996bybanksoperating in

that market. Its aim is to encourage liquidity in both the primary and secondary loan

markets by promoting efficiency and transparency, as well as by developing standards of

documentation and codes of market practice, which are widely used and adopted.

Membership of the LMA currently stands at over 600, covering 60+ nationalities, and

consists of banks, non-bank lenders, law firms, rating agencies and service providers. The

LMA has gained substantial recognition in the market and has expanded its activities to

includeallaspectsoftheprimaryandsecondarysyndicatedloanmarkets.Itseesitsoverall

mission as acting as the authoritative voice of the EMEA loan market vis à vis lenders,

borrowers,regulatorsandotherinterestedparties.

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CONTENTS

PageNumber

INTRODUCTION 3

PROTECTIONSGIVENTOANAGENTINLMAFACILITYDOCUMENTATION 4

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INTRODUCTION

Insyndicatedloanagreementstheroleofanagentisintendedtobesolelymechanicaland

administrative in nature. The LMA Guide to Syndicated Loans and Leveraged Finance

Transactionsidentifiestheagent'sfunctionsasactingasapointofcontactwithallpartiesto

the agreement, monitoring compliance of obligors with certain requirements in the

agreement,actingasapostbox,postmanandrecordkeeperandfinallyactingasapaying

agent for all payments made under the loan agreement. The agent is appointed by the

arrangerandthelenders,andactsontheirbehalfandnotonbehalfoftheobligors.

Whilst the agent under a syndicated loan agreement has various duties, tasks and

authorities,it isgenerallyacceptedinthesyndicatedloanmarketthatsolongastheagent

carries out those functionswith reasonable skill and care, the agent should be protected

from any loss or liability in carrying out those functions. An LMA facility agreement

thereforecontainsanumberofprotectiveprovisionswhichseektoexcludetheAgentfrom

anysuchlossandliability.

Thepurposeofthisguideisnottoprovideageneraloverviewoftheworkingsofanagent

bankactingwithinsyndicatedfacilities. Insteadtheguideseekstoprovideanoverviewof

theprincipalprotectionsprovidedinanLMAfacilityagreement,andassistagents,arrangers,

lendersandthoseagreeingloandocumentationtoidentifythestandardprotectionsthatan

agentundera loanagreementwouldexpect tobenefit from. Anyamendments toa loan

agreement,whicheitherhavetheeffectofextendingthedutiesoftheagentorlimitingthe

protections of the agent, should be considered carefully. Agent approval should also be

soughtbeforeanysuchchangesaremadeoragreed.

Thisguideuses,whereappropriate,relevantextractsfromtherecommendedformofSenior

Multicurrency Term and Revolving Facilities Agreement for Leveraged Acquisition Finance

Transactions produced by the LMA (Facility Agreement). Clause references refer to the

Facility Agreement and terms defined in the Facility Agreement have the same meaning

whenusedinthisguide.

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PROTECTIONSGIVENTOTHEAGENTINLMAFACILITYDOCUMENTATION

ThefollowingprotectionsareincludedinLMArecommendedformfacilityagreements:-

A. LIMITATIONOFDUTIES

Thearranger,lendersandissuingbank(ifany)expresslyauthorisetheagenttoperformthe

duties, obligations and responsibilities specifically given to it in the Finance Documents

togetherwithanyotherincidentalrights,powersauthoritiesanddiscretions1.

The agent only has the duties, obligations and responsibilities that are specified in the

FinanceDocuments, and no others shall be implied2. Any fiduciary or trustee duties that

mayotherwisearisefromactingastheagentareexpresslyexcluded.

The role of the agent in a syndicated loan is expressed to be solely mechanical and

administrativeinnature3.

Unless otherwise specified, the agent is not obliged to review or check the adequacy,

accuracy or completeness of any document it forwards to any party4. The agent is not

responsibleorliablefor:

(i) anyinformationsuppliedbyitin,orinconnectionwith,theFinanceDocuments5;

(ii) any Finance Document, Transaction Security or other document connected to the

FinanceDocumentsorTransactionSecurity6;

(iii) anydeterminationastowhetheranyinformationisnon-publicinformation7.

The agent benefits from a confirmation from each Lender that it is solely responsible for

making itsownassessmentof all risks in relation to the FinanceDocuments including, for

example,thecreditworthinessoftheobligors,allaspectsofthetransactiondocumentation,

its own legal position vis-à-vis the other parties and all information provided to it from

whateversource8.

The agent is not required to carry out "knowyour customer" (KYC) checks onbehalf of a

lenderorotherchecksas towhether the transactioncontemplatedmaybeunlawful fora

lender.Theagentbenefitsfromaconfirmationthateachlenderissolelyresponsibleforany

suchchecksandmaynotrelyonanystatementrelatingtosuchchecksmadebytheagent9.

An agent is not obliged to sign an otherwise duly completed Assignment Agreement or

TransferCertificateuntil it issatisfiedthatishascompliedwithallnecessaryKYCorsimilar

checksinrelationtoaNewLender10.Similarly,anassignmentofrightswillonlybeeffective

once the agent has performed all necessary KYC or similar checks in relation to such

1Clause33.1(b)(AppointmentoftheAgent)

2Clause33.3(g)(DutiesoftheAgent)

3Clause33.3(a)(DutiesoftheAgent)

4Clause33.3(d)(DutiesoftheAgent)

5Clause33.8(a)(Responsibilityfordocumentation)

6Clause33.8(b)(Responsibilityfordocumentation)

7Clause33.8(c)(Responsibilityfordocumentation)

8Clause33.16(CreditappraisalbytheLenders,IssuingBankandAncillaryLenders)

9Clause33.10(d)(Exclusionofliability)

10Clause30.6(b)(Procedurefortransfer)/Clause30.7(b)(Procedureforassignment)

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assignmenttoaNewLender11.

B. RIGHTSANDDISCRETIONS

The agent is not obliged to do, or omit to do, anything which would or might (in its

reasonableopinion)constituteabreachofanylaworregulation,orabreachofafiduciary

dutyordutyofconfidentiality12.

Theagentmayrelyonanyrepresentation,communication,noticeordocumentbelievedby

it to be genuine, correct and appropriately authorised13. Absent actual knowledge, the

agentmayassumethatnodefaulthasoccurredunderthefinancedocuments14.

Inthecaseofcertificates,theagentmayrelyonthetruthandaccuracyofacertificateasto

anymatter of fact or circumstancewhichmight reasonably be expected to bewithin the

knowledgeofthepersonprovidingthecertificate15.Inthecaseofacertificateapprovinga

particulardealing,transaction,steporaction,theagentmayrelyonthatcertificate16.

Unless a FinanceDocument states otherwise, the agentmay act or refrain from acting in

relation toany right, power, authorityordiscretion in accordancewith the instructionsof

theMajority Lenders17,withany such instructionbeingbindingonall FinanceParties save

for theSecurityAgent18. Theagentmayassumethatany instructions it receives fromany

lenderorgroupoflendersaregiveninaccordancewiththeFinanceDocumentsand,absent

noticetothecontrary,thatsuchinstructionshavenotbeenrevoked19.Theagentisentitled

torefrainfromactinginaccordancewithanyinstructionsofanylenderorgroupoflenders

until it has received any indemnification and/or security that it may in its discretion

require20. In the absence of instructions, the agentmay act (or refrain from acting) as it

considerstobeinthebestinterestofthelenders21.

The agent may engage22 and rely on23 the advice or services of professional advisers,

including accountants and lawyers, and is not liable for any damages, costs, losses,

diminutioninvalueoranyliabilitywhatsoeverarisingasaresultoftheagentrelyingonsuch

advice.Iftheagentinitsreasonableopiniondeemsitdesirable,itmayalsoengageandpay

fortheservicesofanylawyerstoactasindependentcounseltotheagent24.

The agent may disclose to any other party any information it reasonably believes it has

receivedasagentunlessaFinanceDocumentprovidesotherwise25.Inaddition,andwithout

prejudice to thegeneralityof thispermission, theagent is expresslypermitted todisclose

11Clause30.3(c)(iii)(Otherconditionsofassignmentortransfer)

12Clause33.7(i)(Rightsanddiscretions)

13Clause33.7(a)(i)(Rightsanddiscretions)

14Clause33.7(b)(i)(Rightsanddiscretions)

15Clause33.7(a)(iii)(A)(Rightsanddiscretions)

16Clause33.7(a)(iii)(B)(Rightsanddiscretions)

17Clause33.2(a)(Instructions)

18Clause33.2(c)(Instructions)

19Clause33.7(a)(ii)(Rightsanddiscretions)

20Clause33.2(d)(Instructions)

21Clause33.2(e)(Instructions)

22Clause33.7(c)(Rightsanddiscretion)

23Clause33.7(e)(Rightsanddiscretion)

24Clause33.7(d)(Rightsanddiscretion)

25Clause33.7(g)(Rightsanddiscretions)

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theidentityofaDefaultingLendertotheParentandotherFinanceParties26.

Theagentmayactthroughitsofficers,employeesandagentsandisnotresponsibleforany

errorsofjudgmentstheymaymakeorbeboundtosupervisethem.Equally,theagentisnot

responsibleforany loss incurredbyreasonoftheirmisconduct,omissionordefaultunless

directlycausedbytheagent'sgrossnegligenceorwilfulmisconduct27.

Theagentisnotobligedtoincurcost,riskitsownfundsorincurfinancialliabilityinactingas

agentifithasgroundsforbelievingtherepaymentofsuchfundsoradequateindemnityor

securityisnotreasonablyassuredtoit28.

Theagentisnotobligedtoenquirewhethertherehasbeenadefaultbyanobligor,whether

any party is in breach of any of its obligations orwhether any other event specified in a

FinanceDocumenthasoccurred29.

An agent may, in its sole discretion, terminate its role or resign and appoint one of its

Affiliatesinitsplace30.

C. EXCLUSIONSOFLIABILITY

The agent is protected from any liabilitywhatsoever (including for negligence) unless the

damages, costs, losses, diminution in value or liability arises as a result of taking or not

taking any action under or in connection with any Finance Document or the Transaction

Securityanditisdirectlycausedbytheagent'sgrossnegligenceorwilfulmisconduct31.

Officers,employeesandagentsoftheagentareprotectedfromanyproceedingsbeingtaken

againstthembyanyParty(otherthantheagent)inrespectofanypotentialclaimoractor

omissionbythemandeachofficer,employeeandagentisentitledtorelyonthisexclusion32.

The agent is not liable for the consequences of any delay in crediting an account with a

required amount if it has taken all necessary steps as soon as reasonably practicable to

complywiththerulesofanyrecognisedclearingorsettlementsystem33.

The agent is not liable for any damages, costs or losses whatsoever as a result of giving

notice to the Parent and the Lenders that it has received all condition precedent

documentationinrelationtoanAdditionalBorrowerorAdditionalGuarantor34.

Totheextenttheagentisliableforanylosses,theyarelimitedtotheamountofactualloss

whichhasbeenfinallyjudiciallydeterminedbutwithoutreferencetoanyspecialconditions

or circumstances known to the agent. In no event is the agent liable for loss of profits,

goodwill, reputation, business opportunity or anticipated saving or for special, punitive,

26Clause33.7(h)(Rightsanddiscretion)

27Clause33.7(f)(Rightsanddiscretion)

28Clause33.7(j)(Rightsanddiscretion)

29Clause33.9(Nodutytomonitor)

30Clause33.12(a)(ResignationoftheAgent)

31Clause33.10(Exclusionofliability)

32Clause33.10(b)(Exclusionofliability)

33Clause33.10(c)(Exclusionofliability)

34Clause32.2(c)(AdditionalBorrowers)andClause32.4(f)(AdditionalGuarantors)

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indirectorconsequentialdamageswhetherornotadvisedtotheagentasapossibility35.

D. INDEMNITIES

I. PARENT'SINDEMNITYTOTHEAGENT36

InadditiontotheindemnitiesgiveninfavourofalloftheFinanceParties,theagentbenefits

from an indemnity given to it by the Parent for any cost, loss or liability incurred by the

agent(actingreasonably),(i)ininvestigatinganyeventwhichtheagentreasonablybelieves

is a Default, (ii) for acting or relying on an instructionwhich it reasonably believes to be

genuine, correct and appropriately authorised, (iii) in instructing professional advisers or

experts as permitted, and (iv) for any other cost, loss or liability incurred by the agent in

actingasagentundertheFinanceDocuments.Thisindemnitydoesnotapplywhereanyloss

arises by virtue of the agent's gross negligence or wilful misconduct except where the

liabilityarisesasaresultoftheagenttakingorfailingtotakeanystepsunderClause36.11

(Disruption to Payment Systems etc), inwhich case the indemnity covers all categories of

liabilityexceptanyclaimbasedonthefraudoftheagent.

II. LENDERS'INDEMNITYTOTHEAGENT37

EachlendermustindemnifytheagentwithinthreeBusinessDaysofdemand,proratatoits

shareof theTotalCommitments, for any cost, lossor liability incurredby theagent. This

indemnity does not applywhere the loss, cost or liability arises as a result of the agent's

grossnegligenceorwilfulmisconductexceptwherethecost,lossorliabilityarisesasaresult

of theagent takingor failing to takeanystepsunderClause36.11 (Disruption toPayment

Systemsetc), inwhichcasethe indemnitycoversallcategoriesof liabilityexceptanyclaim

basedonthefraudoftheagent.Thisindemnityappliestotheextentthattheagenthasnot

beenreimbursedbytheborrowerinaccordancewiththeFinanceDocuments.

E. PAYMENTPROTECTION

I. FEES,COSTSANDEXPENSES

TheagentispaidanagencyfeebytheParentinanamountandatthetimesagreedinaFee

Letter38.

TheParentmustpaytheagentpromptlyondemandtheamountofallreasonablyincurred

costs and expenses (including legal fees) in connectionwith the negotiation, preparation,

printing,execution,syndicationandperfectionof(i)thetransactiondocumentationand(ii)

anyFinanceDocumentsenteredintoaftercompletion39.

IfanObligorrequestsanamendment,waiverorconsentoranamendmentisrequiredasa

resultofachange inthe lawfulcurrencyofacountrypursuanttoClause36.10(Changeof

currency),theParentmustpaytheagentwithinthreeBusinessDaysofdemandtheamount

35Clause33.10(e)(Exclusionofliability)

36Clause21.3(IndemnitytotheAgent)

37Clause33.11(Lenders'indemnitytotheAgent)

38Clause18.3(Agencyfee)

39Clause23.1(Transactionexpenses)

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of all reasonably incurred costs and expenses (including legal fees) in responding to,

evaluating,negotiatingorcomplyingwiththatrequestorrequirement40.

Anyamountpayabletotheagentunderthe indemnitiesandfeesandexpensesprovisions

referred to above must also include the cost of the agent's management time or other

resourcesandwillbecalculatedonareasonabledailyorhourlyrateasnotifiedtotheParent

andtheLenders,andisinadditiontoanyagencyfeepayableunderanyFeeLetter41.

II. CLAWBACKANDPRE-FUNDING42

The agent is not obliged to make any required payments to another party until it has

establishedtoitssatisfactionthatithasalreadyreceivedtherelevantfundsfromthepayer.

However,iftheagentpaysanamounttoanotherpartyanditprovestobethecasethatthe

agenthasnotactuallyreceivedthatamountfromthepayer,thepartytowhomtheamount

waspaid,isrequired,ondemand,torefundthatamounttotheagent,togetherwithinterest

onthatamountfromthedateofpaymenttothedateofreceiptbytheagent,calculatedby

theagenttoreflectitscostoffunds.Iftheagentagreeswithalendertomakepaymentsto

theborrowerbeforereceivingfundsfromthatlenderandtheagentdoesnotreceivefunds

fromthatlenderinrespectofsuchapayment,theborrowermustrefundtheamounttothe

agentandsuchlender(ortheborrowerifthelenderfailstodoso)mustindemnifytheagent

ondemandagainstanyfundingcostsincurredbytheagent.

III. SETOFF

Inadditiontorightsofset-offgiventoallFinanceParties43,theagentmay,aftergivingnotice

to any Party owing an amount to the agent under the Finance Documents, deduct an

amountnotexceedingsuchamountfromanypaymenttothatpartywhichtheagentwould

otherwise be obliged to make under the Finance Documents and apply such amount

towardssatisfactionoftheamountowed44.

40Clause23.2(Amendmentcosts)

41Clause33.17(Agent'smanagementtime)

42Clause36.4(Clawbackandpre-funding)

43Clause37(Set-off)

44Clause33.18(DeductionfromamountspayablebytheAgent)

LMA contact

T: +44 (0)20 7006 6007 F: +44 (0)20 7006 3423 lma@lma.eu.com www.lma.eu.com

© 2017 Loan Market Association. All rights reserved. Printed in the United Kingdom.

In syndicated loan agreements the role of an agent is intended to be solely mechanical and administrative in nature. Whilst the agent under a syndicated loan agreement has various duties, tasks and authorities, it is generally accepted in the syndicated loan market that so long as the agent carries out those functions with reasonable skill and care, the agent should be protected from any loss or liability in carrying out those functions. An LMA facility agreement therefore contains a number of protective provisions which seek to exclude the agent from any such loss and liability.

The purpose of this guide is to provide an overview of the principal protections provided in an LMA facility agreement, and assist agents, arrangers, lenders and those agreeing loan documentation to identify the standard protections that an agent under a loan agreement would expect to benefit from.

Guide to Agency ProtectionsA Loan Market Association Guide