lmawebinar introduction to the lmapre-export …€¦ · introduction to the lmapre-export finance...

LMA WebinarIntroduction to the LMA Pre-Export FinanceFacility AgreementAndrew Taylor, Partner – Hogan Lovells, LondonDavid Leggott, Partner – Hogan Lovells, London

Loan Market Associationthe authoritative voice of the EMEA market

Structure of the Webinar

– What is Pre-Export Finance (PXF)?

– LMA PXF Facility Agreement• Assumed structure/ drafting assumptions• Differences/ similarities to other LMA templates• Key features

2


What is Pre-Export Finance (PXF)?

3

LendersBorrower

(Seller)

Facility Agent/

Security AgentBuyer(s)

CollectionAccount

Sales

ContractsLoan

PaymentsunderSales

Contracts

Surplus from

Collection Account

Debt Service from

Collection Account



– Funds advanced against expectation of future saleproceeds

– Secured structure• Over sales contracts• Over designated bank account(s)• Not over the goods themselves

– Lenders assume payment risk and performance risk4



– Sales Contracts also of key importance

– Historic performance of PXFs has been good

– Due diligence and ongoing monitoring essential

5


LMA's PXF Facility Agreement

– Launched in September 2012

– Challenges: What is a "standard" PXF transaction?• Product-specific issues• Jurisdiction-specific issues

– A sensible starting point

– Familiar LMA structure and style maintained

6


LMA's PXF Facility Agreement – Assumed Structure

7

PaymentsunderSales

Contracts

Loan

(Term Facility)Sales

Contracts

Parent

(Guarantor)

DSRA

Subsidiary 1 ofBorrower

(Guarantor)

CollectionAccount

Buyer(s)Borrower

(Seller)Lenders


(Guarantor)


(Guarantor)

Security


LMA's PXF Facility Agreement – Assumed Structure

– Security package• Focus on Borrower only and "asset-specific"• Beware impact of local law factors

– Guarantees• Again, beware impact of local law factors

– Matching payment currency to loan currency• Requirements for hedging?

8


LMA's PXF Facility Agreement – Comparison points

– LMA's Leveraged Document used as starting point

– Simplified facility structure:• Single term facility/ single currency• No accordion• No Margin ratchet• No Defaulting Lenders

– Security Agent provisions self-contained (Clause 32)– Tax Gross-Up (no Qualifying Lender concept) (Clause 14.1)

9



– Representations, Undertakings and Events of Default

• Broadly following LMA Leveraged Document• Some specialist points removed, others may not be

appropriate for the market• Optional emerging market Events of Default included:

– Foreign exchange/ currency controls (Clause 27.19)

– Foreign currency moratoria (Clause 27.20)

– Political and economic deterioration (Clause 27.21)10



– Jurisdiction/ enforcement (Clause 47)

• Alternative arbitration clause (with option forLenders to elect for court-based dispute resolutionprocess)

• 1958 New York Convention for Recognition andEnforcement of Foreign Arbitral Awards

• Seek local law advice

11


LMA's PXF Facility Agreement – Key features

– Cover ratios (Clause 23)

• Monitors expected/ actual payment flows versusdebt service requirements (short and long term)

• "Early warning" system• Breach = requirements to rectify• Specifics are a matter for commercial negotiation

12



– Cover Ratios (continued)

• 3 main tests:– Debt Service Cover Ratio (DSCR)– Loan Life Cover Ratio (LLCR)– Look Back test

13



– Debt Service Cover Ratio (DSCR)

"Debt Service Cover Ratio" means, on any Test Date, the ratio of:(a) …the Sales Value for the DSCR Calculation Period commencing on that Test Date;

to(b) the amount of the Debt Service Obligations falling due during that DSCR Calculation

Period,

expressed as a percentage;

"DSCR Calculation Period" means [each calendar quarter, commencing after the dateof this Agreement] [each Interest Period] [each period of [one]/ [three] month[s]]commencing after the date of this Agreement

14



– Loan Life Cover Ratio (LLCR)

"Loan Life Cover Ratio" means, on any Test Date, the ratio of:(a) …the Sales Value for the period from that Test Date through to (and including) the

Termination Date;to

(b) the [Debt Service Obligations]/ [Debt Service Obligations under paragraph (a) of thedefinition of that term only] from that Test Date through to (and including) the TerminationDate,

expressed as a percentage;

15




• Cover Ratios vs Financial covenants– "Look forward" in nature– Financial covenants (probably) still required – and

some are included:• "Leverage" test• "Interest cover" test• "Net Worth" test

16



– Look Back Test (Clause 23.4)

The Borrower shall ensure that:

(a) an amount of proceeds under the Assigned Sales Contracts equal in aggregate tonot less than [[] per cent. ([]%)] of the Debt Service Obligations for each LookBack Test Period has been credited to the Collection Account of the Borrowerduring that Look Back Test Period; and

(b) beginning with the Test Date that is [1 month] or more after the first UtilisationDate, an amount of proceeds under the Assigned Sales Contracts equal to notless than [[] per cent. ([]%)] of the Debt Service Obligations for the Look BackTest Period in which that Test Date falls has been credited in aggregate to theCollection Account of the Borrower during the calendar month preceding suchTest Date.

17




• "Assigned Sales Contract"– is (and remains) subject to Transaction Security– Buyer has received notice of assignment (and has

acknowledged it)– Buyer has provided Irrevocable Payment

Instructions

18




• "Eligibility Criteria" for Sales Contracts:– counterparty is a Buyer– minimum tenor remaining– payment to be made:

• in relevant currency within [30] days of delivery• without withholding, deduction, set-off, counterclaim

– freely assignable (or consent to assign is in place)– acceptable governing law/ dispute resolution mechanics

19




• "Day One" Buyers and Sales Contracts• Additional Buyers and Sales Contracts

• Ongoing representation as regards Eligibility Criteria• Specific reps/ undertakings etc regarding Sales

Contracts

20




• "Buyers"– Invoice Buyers– L/C Buyers

• Borrower's rights to proceeds under Letters of Creditshould be captured by Sales Contract securityassignment

21




• "Sales Value"…means, on any Test Date, in respect of any period the quantity of

Products to be delivered under the Assigned Sales Contracts and for whichpayment is due during that period… multiplied by the Reference Price

• "Reference Price"– Product specific; no LMA definition provided

• Debt Service Obligations – future LIBOR/ EURIBOR rates22

excluding any Products in respect of which payment has been made prior tothe relevant Test Date;




• Breach of DSCR/ LLCR

• Top-Up (Clause 23.3):– Voluntary prepayment– Increase in quantities– Additional Sales Contracts– Payment to Debt Service Reserve Account (DSRA)

23



– Sales Contracts – specific provisions

• Representations and warranties (Clause 20.25)• Information undertakings (Clause 21.6)• Specific undertakings (Clause 25)

24



– Sales Contracts – Reps and warranties (summary)

• Sales Contracts in effect• Eligibility Criteria satisfied• Arm's length terms• Borrower has capability to comply with obligations• No adverse events

25



– Sales Contracts – Information undertakings (summary)

• Notify of material developments/ material progress• Notify of any default/ suspension event• Copies of material documentation• Monthly report

26



– Sales Contracts – Specific undertakings (summary)

• Comply with own obligations• Procure compliance by counterparty (best efforts)• Diligent pursuit of counterparties for breach• Fair market price• No amendments/ variations

27



– Sales Contract failure (Clause 25.7)

– Buyer failure (Clause 25.8)• Default on obligations• Insolvency Event• Rescission/ repudiation• Insufficiently creditworthy

28



– Additional Sales Contracts/ Additional Buyers (Clause 25.9)

– Additional Buyers• Sanctions assessment• Agent may impose conditions

– Additional Sales Contracts• Eligibility Criteria vs Majority Lender discretion

29



– Bank Accounts (Clause 26)

– Collection Account• Signing rights• General authority for Agent to debit for sums due

– Debt Service Reserve Account (DSRA)• Initial deposit and requirement to replenish• Funds swept from Collection Account• No withdrawals

30


Speaker contact details

31

Andrew TaylorPartner, LondonHogan Lovells International LLP

T +44 20 7296 5949M +44 7894 003235

[email protected]

David LeggottPartner, LondonHogan Lovells International LLP

T +44 20 7296 5678M +44 7809 511205

[email protected]

lmawebinar introduction to the lmapre-export …€¦ · introduction to the lmapre-export finance...

Documents