Guarantees—varying the underlying transaction: practical considerations
Guarantees—varying the underlying transaction: practical considerations

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

  • Guarantees—varying the underlying transaction: practical considerations
  • Summary of legal considerations
  • Variations to the underlying transaction which will release a guarantee
  • Giving the principal additional time to pay
  • Releasing the principal from its obligations under the guaranteed obligations
  • Releasing co-guarantors
  • Releasing security or taking any action which will diminish the benefit (including the value) of any security granted to the guaranteed party for the guaranteed obligations
  • Changing the identity of the principal or the guaranteed party
  • Variations which will release the guarantee if they could prejudice the guarantor
  • The rule in Holme v Brunskill
  • More...

Guarantees—varying the underlying transaction: practical considerations

It is common for the parties to a facility agreement to want to amend its terms, often a number of times, during the life of the facilities. They may, for example, wish to extend the repayment date or increase amounts available to allow the borrower to fund another project or purchase. The lender may use an increase to the facilities to make other changes to the documentation such as an increase to the interest rate or additional undertakings. Such changes may be documented by an amendment letter, an amendment and restatement agreement or sometimes by the issuance of a new facility letter or agreement aimed at replacing the previous one. For information on how to amend a facility agreement, see Practice Note: Amending a facility agreement.

Where the lender is to have the benefit of guarantees or Third party security (which is effectively a guarantee backed by security and so this Practice Note applies to third-party security as well as unsecured guarantees), it will want to ensure that it continues to have the benefit of its guarantees if the terms of the underlying transaction change. For this reason, a key consideration while drafting the guarantee will be to ensure that it will not be discharged by amendments which the parties may want to make over the life of the facilities

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