Let the games start in July 2021 | Issue 136 – Revlon: It’s Worth It (Part II: Borrower Considerations) | Cadwalader, Wickersham & Taft LLP

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In last week’s edition of FFF, we discussed the Revlon case involving an erroneous payment by an administrative agent to the syndicate’s lenders, which is currently on appeal to the Second Circuit Court of Appeals. To follow the case, click on here. We set out the district court decision in this case, which was quite troubling for administrative officers in the syndicated loan market, and discussed how administrative officers have reacted: since the decision was issued, it has become the market standard for administrative agents to include protective provisions in their credit agreements describing exactly what would happen and what rights the administrative agent would have in the event of an erroneous payment to a lender. And, as the provisions are meant to protect the administrative agent, last week we detailed some of the reactions we are seeing from union lenders to the new protection provisions.

But lenders aren’t the only other parties to the credit agreement, and they’re not the only ones who have something to say about the new terms. In this week’s episode, we’ll go into some of the feedback we’re getting from borrowers.

Provisions relating to erroneous payments of the LSTA

As we discussed last week, in response to the District Court ruling, in March of this year, the Loan Syndications and Trading Association (the “LSTA”) released a language model for loan agreements to protect an administrative agent in a syndicated loan transaction. when this agent makes an incorrect payment (that is to say, an involuntary payment) to one or more syndicate lenders. On June 16, 2021, the LSTA released revised erroneous payments provisions with a black line showing the evolution of the language from the original suggested language. We have seen a variety of comments from borrowers. Here are several examples.

Borrower concerns

  • Obligations of the borrower. While the provisions relating to erroneous payments are intended to resolve the relationship between an administrative agent and a lender who has received an erroneous payment, some borrowers have sought to clarify this point by adding text indicating that in no case the borrower or any other party obligations (payment or otherwise) in respect of an erroneous payment transmitted to a lender.
  • Recovery of loans. In view of the broad rights granted to the Administrative Officer under the Erroneous Payments provisions to recover erroneous payments, some borrowers have sought to add clarifying language that under no circumstances will the financing of a loan or any other payment be made. to a creditor party will not be considered as an erroneous payment. , except for some potential errors listed.
  • Source of funds for incorrect payment. We have seen comments from the borrower’s side aimed at addressing the theoretical possibility that an administrative agent will take payments made by the borrower and disproportionately mistakenly remit them to one or more lenders (we note that this is not is not consistent with the facts of the Revlon case where the administrative agent transferred his own funds in error). Borrowers have said they are concerned that under these circumstances the payment he made may not meet his obligations. To this end, the borrower’s lawyer has added wording that under this model of facts, the borrower’s payment will be applied to the settlement of his debt.
  • Limit summons in accordance with existing summons. In the event that an erroneous payment is not recovered by the administrative agent from the applicable lender within the prescribed time frame, the new provisions generally provide that the applicable lender will be deemed to have assigned its loans (but not its commitments) to the in respect of which the erroneous payment was made to the administrative officer. To this end, the administrative agent then has the right to sell all loans acquired under this mechanism in accordance with the assignment provisions of the credit agreement. As with any assignment, counsel for the borrower has sought to limit the assignment of loans so that loans in these circumstances cannot be assigned to parties who would not otherwise be eligible to become a lender under ease (that is to say, competitors, etc.).
  • Availability of commitments. Although the provisions relating to erroneous payments specifically state that the exercise by an administrative agent of his rights under the provisions relating to erroneous payments shall not reduce the liabilities of a lender and that his liabilities shall remain available in accordance with the terms of In the credit agreement, we have seen additional language clarification from the borrower’s lawyer to provide additional assurance that despite any erroneous payment situation, the covenants remain available to the borrower.
  • Wholesale deletion. Finally, the lawyer on the borrower’s side may try to remove the provisions for erroneous payments entirely. We do not know of any administrative agent accepting this approach.

Look ahead

We will continue to monitor all developments in the Revlon case and keep you informed of the appeal during the Second Circuit.


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