In financing transactions, Conditions precedent (known as CPs) are the specific conditions that need to be fulfilled for funding to occur under a facility agreement. They are not necessarily conditions to the facility agreement coming into effect, but typically conditions to Lending (although some facility agreements will also contain conditions precedent to signing of the facility agreement (the Loan Market Association leveraged facility being an example)). CPs can also be used in Finance documents as conditions to the effectiveness of amendments/waivers or an accession.

There are two types of conditions precedent:

1. •

   factual conditions precedent, and

2. •

   documentary conditions precedent

The factual conditions precedent are usually found within the body of the facility agreement in the clause dealing with conditions to utilisation. The borrower's lawyers should check with the borrower that the factual conditions precedent will be satisfied immediately prior to Drawdown. These sorts of conditions will often be related to the representations and warranties given by the obligors. For more information, see Practice Note: Representations and warranties.

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