Borrowing base facilities—key terms in the facility agreement
Produced in partnership with Dentons UK and Middle East LLP
Borrowing base facilities—key terms in the facility agreement

The following Banking & Finance guidance note Produced in partnership with Dentons UK and Middle East LLP provides comprehensive and up to date legal information covering:

  • Borrowing base facilities—key terms in the facility agreement
  • Committed or uncommitted facility
  • Drawdown provisions in borrowing base facilities
  • Repayment and mark to market provisions
  • The borrowing base
  • The borrowing base report
  • Representations, warranties and covenants relating to the borrowing base assets and the borrowing base report
  • Hedging covenants in borrowing base facilities
  • Borrowing base audit

A borrowing base facility ('BB Facility') is a working capital line designed to provide short term liquidity by way of advances or the issue of trade instruments ('Instrument') such as letters of credit (see: Letters of credit—overview) or demand guarantees (see: Standby credits, on demand guarantees/bonds—overview). It is a type of trade finance. For information on borrowing base facility structures, see Practice Note: Borrowing base facilities—structure, key terms and risks.

BB Facilities are usually used to finance a pool of traded assets with high price volatility. A typical borrowing base facility agreement will include provisions which focus on those assets and their value.

For information on the security arrangements in borrowing base facility structures, see Practice Note: Borrowing base facilities—taking security.

Committed or uncommitted facility

BB Facilities have traditionally been made available on an uncommitted basis, although committed BB Facilities are also common. An uncommitted facility is one under which the lender has no obligation to lend or issue an instrument and does so entirely at its discretion if requested by the borrower.

The terms of the facility agreement will be affected by whether a BB Facility is made available on an uncommitted or committed basis. The key differences are:

  1. standard language included in committed facilities which provides that the lender has an obligation to lend once all conditions precedent have

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