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A Loan Market Association GuideA Loan Market Association Guide
Guide to Agency ProtectionsMarch 2017
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ALOANMARKETASSOCIATIONGUIDE
AGUIDETOAGENCYPROTECTIONS
LoanMarketAssociation
10UpperBankStreet,LondonE145JJ
©LoanMarketAssociation2017
PublishedbytheLoanMarketAssociationinMarch2017
10UpperBankStreet,LondonE145JJ
Telephone:+44(0)2070066007
Fax:+44(0)2070063423
Email:lma@lma.eu.com
Website:www.lma.eu.com
Allrightsreserved.Nopartofthispublicationmaybereproduced,storedinanyretrieval
systemortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying,
recordingorotherwise,withoutpriorwrittenpermissionofthecopyrightholder,forwhich
applicationshouldbeaddressedinthefirstinstancetothepublishers.Noliabilityshall
attachtotheauthors,thecopyrightholderorthepublishersforlossordamageofany
naturesufferedasaresultofthereproductionofanyofthecontentsofthispublication.
Theviewsandopinionsexpressedinthispublicationaretheviewsoftheauthors.TheLoan
MarketAssociationandtheauthorshavemadeeveryefforttoensurethecompleteaccuracy
ofthetextbutnoneoftheLoanMarketAssociation,theauthorsorthepublisherscan
acceptanylegalresponsibilityorliabilityforanyerrororomissioninitscontents.
This"GuidetoAgencyProtections"isnotintendedtobecompletelycomprehensive.
Rather,itseekstoprovideanoverviewoftheprotectionsaffordedtoanagentunderLMA
facilitydocumentation.Mostimportantly,thispublicationisnotdesignedtoprovidelegalor
otheradviceonanymatterwhatsoever.
TheLoanMarketAssociation
TheLoanMarketAssociation(LMA)isthetradebodyfortheEurope,MiddleEastandAfrica
(EMEA)syndicated loanmarketandwas founded inDecember1996bybanksoperating in
that market. Its aim is to encourage liquidity in both the primary and secondary loan
markets by promoting efficiency and transparency, as well as by developing standards of
documentation and codes of market practice, which are widely used and adopted.
Membership of the LMA currently stands at over 600, covering 60+ nationalities, and
consists of banks, non-bank lenders, law firms, rating agencies and service providers. The
LMA has gained substantial recognition in the market and has expanded its activities to
includeallaspectsoftheprimaryandsecondarysyndicatedloanmarkets.Itseesitsoverall
mission as acting as the authoritative voice of the EMEA loan market vis à vis lenders,
borrowers,regulatorsandotherinterestedparties.
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CONTENTS
PageNumber
INTRODUCTION 3
PROTECTIONSGIVENTOANAGENTINLMAFACILITYDOCUMENTATION 4
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INTRODUCTION
Insyndicatedloanagreementstheroleofanagentisintendedtobesolelymechanicaland
administrative in nature. The LMA Guide to Syndicated Loans and Leveraged Finance
Transactionsidentifiestheagent'sfunctionsasactingasapointofcontactwithallpartiesto
the agreement, monitoring compliance of obligors with certain requirements in the
agreement,actingasapostbox,postmanandrecordkeeperandfinallyactingasapaying
agent for all payments made under the loan agreement. The agent is appointed by the
arrangerandthelenders,andactsontheirbehalfandnotonbehalfoftheobligors.
Whilst the agent under a syndicated loan agreement has various duties, tasks and
authorities,it isgenerallyacceptedinthesyndicatedloanmarketthatsolongastheagent
carries out those functionswith reasonable skill and care, the agent should be protected
from any loss or liability in carrying out those functions. An LMA facility agreement
thereforecontainsanumberofprotectiveprovisionswhichseektoexcludetheAgentfrom
anysuchlossandliability.
Thepurposeofthisguideisnottoprovideageneraloverviewoftheworkingsofanagent
bankactingwithinsyndicatedfacilities. Insteadtheguideseekstoprovideanoverviewof
theprincipalprotectionsprovidedinanLMAfacilityagreement,andassistagents,arrangers,
lendersandthoseagreeingloandocumentationtoidentifythestandardprotectionsthatan
agentundera loanagreementwouldexpect tobenefit from. Anyamendments toa loan
agreement,whicheitherhavetheeffectofextendingthedutiesoftheagentorlimitingthe
protections of the agent, should be considered carefully. Agent approval should also be
soughtbeforeanysuchchangesaremadeoragreed.
Thisguideuses,whereappropriate,relevantextractsfromtherecommendedformofSenior
Multicurrency Term and Revolving Facilities Agreement for Leveraged Acquisition Finance
Transactions produced by the LMA (Facility Agreement). Clause references refer to the
Facility Agreement and terms defined in the Facility Agreement have the same meaning
whenusedinthisguide.
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PROTECTIONSGIVENTOTHEAGENTINLMAFACILITYDOCUMENTATION
ThefollowingprotectionsareincludedinLMArecommendedformfacilityagreements:-
A. LIMITATIONOFDUTIES
Thearranger,lendersandissuingbank(ifany)expresslyauthorisetheagenttoperformthe
duties, obligations and responsibilities specifically given to it in the Finance Documents
togetherwithanyotherincidentalrights,powersauthoritiesanddiscretions1.
The agent only has the duties, obligations and responsibilities that are specified in the
FinanceDocuments, and no others shall be implied2. Any fiduciary or trustee duties that
mayotherwisearisefromactingastheagentareexpresslyexcluded.
The role of the agent in a syndicated loan is expressed to be solely mechanical and
administrativeinnature3.
Unless otherwise specified, the agent is not obliged to review or check the adequacy,
accuracy or completeness of any document it forwards to any party4. The agent is not
responsibleorliablefor:
(i) anyinformationsuppliedbyitin,orinconnectionwith,theFinanceDocuments5;
(ii) any Finance Document, Transaction Security or other document connected to the
FinanceDocumentsorTransactionSecurity6;
(iii) anydeterminationastowhetheranyinformationisnon-publicinformation7.
The agent benefits from a confirmation from each Lender that it is solely responsible for
making itsownassessmentof all risks in relation to the FinanceDocuments including, for
example,thecreditworthinessoftheobligors,allaspectsofthetransactiondocumentation,
its own legal position vis-à-vis the other parties and all information provided to it from
whateversource8.
The agent is not required to carry out "knowyour customer" (KYC) checks onbehalf of a
lenderorotherchecksas towhether the transactioncontemplatedmaybeunlawful fora
lender.Theagentbenefitsfromaconfirmationthateachlenderissolelyresponsibleforany
suchchecksandmaynotrelyonanystatementrelatingtosuchchecksmadebytheagent9.
An agent is not obliged to sign an otherwise duly completed Assignment Agreement or
TransferCertificateuntil it issatisfiedthatishascompliedwithallnecessaryKYCorsimilar
checksinrelationtoaNewLender10.Similarly,anassignmentofrightswillonlybeeffective
once the agent has performed all necessary KYC or similar checks in relation to such
1Clause33.1(b)(AppointmentoftheAgent)
2Clause33.3(g)(DutiesoftheAgent)
3Clause33.3(a)(DutiesoftheAgent)
4Clause33.3(d)(DutiesoftheAgent)
5Clause33.8(a)(Responsibilityfordocumentation)
6Clause33.8(b)(Responsibilityfordocumentation)
7Clause33.8(c)(Responsibilityfordocumentation)
8Clause33.16(CreditappraisalbytheLenders,IssuingBankandAncillaryLenders)
9Clause33.10(d)(Exclusionofliability)
10Clause30.6(b)(Procedurefortransfer)/Clause30.7(b)(Procedureforassignment)
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assignmenttoaNewLender11.
B. RIGHTSANDDISCRETIONS
The agent is not obliged to do, or omit to do, anything which would or might (in its
reasonableopinion)constituteabreachofanylaworregulation,orabreachofafiduciary
dutyordutyofconfidentiality12.
Theagentmayrelyonanyrepresentation,communication,noticeordocumentbelievedby
it to be genuine, correct and appropriately authorised13. Absent actual knowledge, the
agentmayassumethatnodefaulthasoccurredunderthefinancedocuments14.
Inthecaseofcertificates,theagentmayrelyonthetruthandaccuracyofacertificateasto
anymatter of fact or circumstancewhichmight reasonably be expected to bewithin the
knowledgeofthepersonprovidingthecertificate15.Inthecaseofacertificateapprovinga
particulardealing,transaction,steporaction,theagentmayrelyonthatcertificate16.
Unless a FinanceDocument states otherwise, the agentmay act or refrain from acting in
relation toany right, power, authorityordiscretion in accordancewith the instructionsof
theMajority Lenders17,withany such instructionbeingbindingonall FinanceParties save
for theSecurityAgent18. Theagentmayassumethatany instructions it receives fromany
lenderorgroupoflendersaregiveninaccordancewiththeFinanceDocumentsand,absent
noticetothecontrary,thatsuchinstructionshavenotbeenrevoked19.Theagentisentitled
torefrainfromactinginaccordancewithanyinstructionsofanylenderorgroupoflenders
until it has received any indemnification and/or security that it may in its discretion
require20. In the absence of instructions, the agentmay act (or refrain from acting) as it
considerstobeinthebestinterestofthelenders21.
The agent may engage22 and rely on23 the advice or services of professional advisers,
including accountants and lawyers, and is not liable for any damages, costs, losses,
diminutioninvalueoranyliabilitywhatsoeverarisingasaresultoftheagentrelyingonsuch
advice.Iftheagentinitsreasonableopiniondeemsitdesirable,itmayalsoengageandpay
fortheservicesofanylawyerstoactasindependentcounseltotheagent24.
The agent may disclose to any other party any information it reasonably believes it has
receivedasagentunlessaFinanceDocumentprovidesotherwise25.Inaddition,andwithout
prejudice to thegeneralityof thispermission, theagent is expresslypermitted todisclose
11Clause30.3(c)(iii)(Otherconditionsofassignmentortransfer)
12Clause33.7(i)(Rightsanddiscretions)
13Clause33.7(a)(i)(Rightsanddiscretions)
14Clause33.7(b)(i)(Rightsanddiscretions)
15Clause33.7(a)(iii)(A)(Rightsanddiscretions)
16Clause33.7(a)(iii)(B)(Rightsanddiscretions)
17Clause33.2(a)(Instructions)
18Clause33.2(c)(Instructions)
19Clause33.7(a)(ii)(Rightsanddiscretions)
20Clause33.2(d)(Instructions)
21Clause33.2(e)(Instructions)
22Clause33.7(c)(Rightsanddiscretion)
23Clause33.7(e)(Rightsanddiscretion)
24Clause33.7(d)(Rightsanddiscretion)
25Clause33.7(g)(Rightsanddiscretions)
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theidentityofaDefaultingLendertotheParentandotherFinanceParties26.
Theagentmayactthroughitsofficers,employeesandagentsandisnotresponsibleforany
errorsofjudgmentstheymaymakeorbeboundtosupervisethem.Equally,theagentisnot
responsibleforany loss incurredbyreasonoftheirmisconduct,omissionordefaultunless
directlycausedbytheagent'sgrossnegligenceorwilfulmisconduct27.
Theagentisnotobligedtoincurcost,riskitsownfundsorincurfinancialliabilityinactingas
agentifithasgroundsforbelievingtherepaymentofsuchfundsoradequateindemnityor
securityisnotreasonablyassuredtoit28.
Theagentisnotobligedtoenquirewhethertherehasbeenadefaultbyanobligor,whether
any party is in breach of any of its obligations orwhether any other event specified in a
FinanceDocumenthasoccurred29.
An agent may, in its sole discretion, terminate its role or resign and appoint one of its
Affiliatesinitsplace30.
C. EXCLUSIONSOFLIABILITY
The agent is protected from any liabilitywhatsoever (including for negligence) unless the
damages, costs, losses, diminution in value or liability arises as a result of taking or not
taking any action under or in connection with any Finance Document or the Transaction
Securityanditisdirectlycausedbytheagent'sgrossnegligenceorwilfulmisconduct31.
Officers,employeesandagentsoftheagentareprotectedfromanyproceedingsbeingtaken
againstthembyanyParty(otherthantheagent)inrespectofanypotentialclaimoractor
omissionbythemandeachofficer,employeeandagentisentitledtorelyonthisexclusion32.
The agent is not liable for the consequences of any delay in crediting an account with a
required amount if it has taken all necessary steps as soon as reasonably practicable to
complywiththerulesofanyrecognisedclearingorsettlementsystem33.
The agent is not liable for any damages, costs or losses whatsoever as a result of giving
notice to the Parent and the Lenders that it has received all condition precedent
documentationinrelationtoanAdditionalBorrowerorAdditionalGuarantor34.
Totheextenttheagentisliableforanylosses,theyarelimitedtotheamountofactualloss
whichhasbeenfinallyjudiciallydeterminedbutwithoutreferencetoanyspecialconditions
or circumstances known to the agent. In no event is the agent liable for loss of profits,
goodwill, reputation, business opportunity or anticipated saving or for special, punitive,
26Clause33.7(h)(Rightsanddiscretion)
27Clause33.7(f)(Rightsanddiscretion)
28Clause33.7(j)(Rightsanddiscretion)
29Clause33.9(Nodutytomonitor)
30Clause33.12(a)(ResignationoftheAgent)
31Clause33.10(Exclusionofliability)
32Clause33.10(b)(Exclusionofliability)
33Clause33.10(c)(Exclusionofliability)
34Clause32.2(c)(AdditionalBorrowers)andClause32.4(f)(AdditionalGuarantors)
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indirectorconsequentialdamageswhetherornotadvisedtotheagentasapossibility35.
D. INDEMNITIES
I. PARENT'SINDEMNITYTOTHEAGENT36
InadditiontotheindemnitiesgiveninfavourofalloftheFinanceParties,theagentbenefits
from an indemnity given to it by the Parent for any cost, loss or liability incurred by the
agent(actingreasonably),(i)ininvestigatinganyeventwhichtheagentreasonablybelieves
is a Default, (ii) for acting or relying on an instructionwhich it reasonably believes to be
genuine, correct and appropriately authorised, (iii) in instructing professional advisers or
experts as permitted, and (iv) for any other cost, loss or liability incurred by the agent in
actingasagentundertheFinanceDocuments.Thisindemnitydoesnotapplywhereanyloss
arises by virtue of the agent's gross negligence or wilful misconduct except where the
liabilityarisesasaresultoftheagenttakingorfailingtotakeanystepsunderClause36.11
(Disruption to Payment Systems etc), inwhich case the indemnity covers all categories of
liabilityexceptanyclaimbasedonthefraudoftheagent.
II. LENDERS'INDEMNITYTOTHEAGENT37
EachlendermustindemnifytheagentwithinthreeBusinessDaysofdemand,proratatoits
shareof theTotalCommitments, for any cost, lossor liability incurredby theagent. This
indemnity does not applywhere the loss, cost or liability arises as a result of the agent's
grossnegligenceorwilfulmisconductexceptwherethecost,lossorliabilityarisesasaresult
of theagent takingor failing to takeanystepsunderClause36.11 (Disruption toPayment
Systemsetc), inwhichcasethe indemnitycoversallcategoriesof liabilityexceptanyclaim
basedonthefraudoftheagent.Thisindemnityappliestotheextentthattheagenthasnot
beenreimbursedbytheborrowerinaccordancewiththeFinanceDocuments.
E. PAYMENTPROTECTION
I. FEES,COSTSANDEXPENSES
TheagentispaidanagencyfeebytheParentinanamountandatthetimesagreedinaFee
Letter38.
TheParentmustpaytheagentpromptlyondemandtheamountofallreasonablyincurred
costs and expenses (including legal fees) in connectionwith the negotiation, preparation,
printing,execution,syndicationandperfectionof(i)thetransactiondocumentationand(ii)
anyFinanceDocumentsenteredintoaftercompletion39.
IfanObligorrequestsanamendment,waiverorconsentoranamendmentisrequiredasa
resultofachange inthe lawfulcurrencyofacountrypursuanttoClause36.10(Changeof
currency),theParentmustpaytheagentwithinthreeBusinessDaysofdemandtheamount
35Clause33.10(e)(Exclusionofliability)
36Clause21.3(IndemnitytotheAgent)
37Clause33.11(Lenders'indemnitytotheAgent)
38Clause18.3(Agencyfee)
39Clause23.1(Transactionexpenses)
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of all reasonably incurred costs and expenses (including legal fees) in responding to,
evaluating,negotiatingorcomplyingwiththatrequestorrequirement40.
Anyamountpayabletotheagentunderthe indemnitiesandfeesandexpensesprovisions
referred to above must also include the cost of the agent's management time or other
resourcesandwillbecalculatedonareasonabledailyorhourlyrateasnotifiedtotheParent
andtheLenders,andisinadditiontoanyagencyfeepayableunderanyFeeLetter41.
II. CLAWBACKANDPRE-FUNDING42
The agent is not obliged to make any required payments to another party until it has
establishedtoitssatisfactionthatithasalreadyreceivedtherelevantfundsfromthepayer.
However,iftheagentpaysanamounttoanotherpartyanditprovestobethecasethatthe
agenthasnotactuallyreceivedthatamountfromthepayer,thepartytowhomtheamount
waspaid,isrequired,ondemand,torefundthatamounttotheagent,togetherwithinterest
onthatamountfromthedateofpaymenttothedateofreceiptbytheagent,calculatedby
theagenttoreflectitscostoffunds.Iftheagentagreeswithalendertomakepaymentsto
theborrowerbeforereceivingfundsfromthatlenderandtheagentdoesnotreceivefunds
fromthatlenderinrespectofsuchapayment,theborrowermustrefundtheamounttothe
agentandsuchlender(ortheborrowerifthelenderfailstodoso)mustindemnifytheagent
ondemandagainstanyfundingcostsincurredbytheagent.
III. SETOFF
Inadditiontorightsofset-offgiventoallFinanceParties43,theagentmay,aftergivingnotice
to any Party owing an amount to the agent under the Finance Documents, deduct an
amountnotexceedingsuchamountfromanypaymenttothatpartywhichtheagentwould
otherwise be obliged to make under the Finance Documents and apply such amount
towardssatisfactionoftheamountowed44.
40Clause23.2(Amendmentcosts)
41Clause33.17(Agent'smanagementtime)
42Clause36.4(Clawbackandpre-funding)
43Clause37(Set-off)
44Clause33.18(DeductionfromamountspayablebytheAgent)
LMA contact
T: +44 (0)20 7006 6007 F: +44 (0)20 7006 3423 lma@lma.eu.com www.lma.eu.com
© 2017 Loan Market Association. All rights reserved. Printed in the United Kingdom.
In syndicated loan agreements the role of an agent is intended to be solely mechanical and administrative in nature. Whilst the agent under a syndicated loan agreement has various duties, tasks and authorities, it is generally accepted in the syndicated loan market that so long as the agent carries out those functions with reasonable skill and care, the agent should be protected from any loss or liability in carrying out those functions. An LMA facility agreement therefore contains a number of protective provisions which seek to exclude the agent from any such loss and liability.
The purpose of this guide is to provide an overview of the principal protections provided in an LMA facility agreement, and assist agents, arrangers, lenders and those agreeing loan documentation to identify the standard protections that an agent under a loan agreement would expect to benefit from.
Guide to Agency ProtectionsA Loan Market Association Guide