Drafting and negotiating term sheets in loan transactions
Drafting and negotiating term sheets in loan transactions

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Drafting and negotiating term sheets in loan transactions
  • Parties
  • Are term sheets legally binding?
  • Drafting the term sheet
  • Negotiating the terms

Term sheets are often prepared by the lender internally either by the in-house lawyers or, in some cases, the bankers themselves. For complex transactions the lender will instruct external lawyers to prepare and negotiate the term sheet.

For more information, see:

  1. What is a term sheet?

  2. When are term sheets used?

Parties

The parties to the term sheet will be:

  1. the prospective lender, and

  2. the prospective borrower

Are term sheets legally binding?

Term sheets are usually drafted as a conditional agreement to lend and so are not 'fundable' on their own. They only include the main terms of the facility. They don't deal with every eventuality. The lender requires flexibility so that the main terms of the facility can be expanded upon and adapted as necessary during the drafting of the facility documents and the negotiations which follow.

Whether the facility documents will be signed by the lender is usually subject to:

  1. the lender obtaining approval internally from its credit committee

  2. the lender being satisfied with the facility documents

  3. there being no material adverse change to the financial condition of the borrower (and its group, where relevant) between the date of the term sheet and the signing of the facility documentation, and

  4. satisfactory due diligence being conducted by the lender on the borrower (and its group, where applicable) including the necessary