Pub. 7 2012-2013 Issue 4

November | December 2012 29 Extraordinary Service for Extraordinary Members. Covenant-Lite Loans A general loosening of restrictive covenants has also oc- curred post-recession. New transactions and refinancings are including larger baskets for additional debt, invest- ments, acquisitions, and restricted payments, as well as fewer or less restrictive financial covenants. On revolving credits, typically there still are net worth and leverage or fixed charge covenants. However, EBITDA (Earnings Be- fore Interest, Taxes, Depreciation, and Amortization) add- backs are more expansive, and may include depreciation/ amortization, other non-cash charges, non-recurring write downs, earn-outs, and permitted distributions. For term loans, financial covenants may be incurrence covenants— tested only in connection with the incurrence of additional debt or at the time other specified actions occur—rather than maintenance covenants tested and reported on a periodic basis. Finally, these financial covenants often include a significant cushion (25 to 30 percent) over bor- rower projections. Defaulting Lenders Prior to the financial crisis, little attention was paid to defaulting lender provisions in syndicated credit agree- ments, as the continued solvency of the lending group was assumed. However, with the increase in bank failures and general instability since 2008, lead banks and borrowers have been faced with the possibility that participant lend- ers may be unable to meet their funding obligations. As a result, more detailed defaulting lender provisions have developed. These have included provisions addressing the following: • expansion of the definition of a “defaulting lender” to include situations where a lender’s affiliates have become insolvent or the lender has defaulted under other credit facilities. This allows the defaulting lender provisions to become effective prior to the lender actually failing tomake a required payment under the credit facility; • reallocation of the defaulting lender’s interest in swingline loans and letters of credit among non-defaulting lenders; • ability of the borrower to terminate a defaulting lender’s existing commitments and repay outstanding loans instead of finding a replacement lender; • forfeiture of voting rights and commitment, facility, and issuance fees by defaulting lender; and • an offset of defaulting lender’s right to share in repay- ment of loans against the amount defaulting lender failed to fund. Yield Protection Provisions Historically, commercial credit agreements have in- cluded yield protection provisions that protect lenders from increased costs resulting from changes in laws occurring after the loan closing date. Given that the full impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act is unknown, as regulations thereunder are still to come in many instances, these yield protection provisions are being modified to specifically include any requests, rules, guidelines, and directives under Dodd-Frank, regardless of the date enacted, adopted, or issued. Z Historically, commercial credit agreements have included yield protection provisions that protect lenders from increased costs resulting from changes in laws occurring after the loan closing date. For more information, contact Aaron Johnson at Husch Blackwell LLP at (402) 964-5023 or aaron.johnson@ huschblackwell.com. Johnson is a partner in Husch Blackwell LLP’s Banking & Finance Department, where he concentrates his practice in the areas of commercial lending, structured finance, and regulatory compliance. Congratulations, Matt Williams American National Bank congratulates incoming ABA Chairman Matt Williams of Gothenburg State Bank. His outstanding service, strong leadership skills and dedication to the banking industry will well serve the American Bankers Association. Omaha - Council Bluffs - Lincoln 32 locations in Nebraska and Iowa. For the location nearest you go online at www.anbank.com or call 800-279-0007.