Q&As

What risks should lenders consider when granting unconditional amendments and waivers?

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Published on LexisPSL on 26/06/2020

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • What risks should lenders consider when granting unconditional amendments and waivers?
  • The basic traps
  • Establish the commercial facts first
  • Other layers of conditionality
  • Taking care with discussions and correspondence
  • Examining facility documentation
  • Information required as a condition to an amendment or waiver
  • Temporal effect
  • Points to watch with more complex facility arrangements
  • Amendment, waiver or consent?
  • More...

What risks should lenders consider when granting unconditional amendments and waivers?

Amendment and waiver requests are an important aspect of managing any facility for lenders.

During the life of a facility agreement, the needs of a borrower’s business may change, or unforeseen events may happen, which necessitate the need for an amendment or waiver.

However, dealing with such requests needs to be managed carefully, irrespective of the apparent level of complexity of the underlying facility agreement.

In particular, lenders should pause for thought before contemplating giving an unconditional amendment or waiver.

The basic traps

Just as a formula one car needs to be serviced by an experienced mechanic to ensure that it runs smoothly during a grand prix race, a facility agreement needs a similar level of care when it is ‘serviced’ to facilitate an amendment or a waiver. This will help to ensure that it retains the desired effect for the lender for the remaining duration of the facility.

There are several traps that can catch an unsuspecting lender unawares when granting unconditional amendments or waivers. These include:

  1. creating ambiguity within the facility documentation

  2. not achieving the desired commercial effect that the lender requires

  3. inadvertently diluting or restricting the lender’s draw stop, acceleration and/or enforcement rights

  4. impairing or invalidating existing guarantees and security

  5. unintentionally affecting rights and obligations in other finance documents, and

  6. triggering liability vis a vis the lender

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