As opposed to local credit contracts that are usually drafted by in-house Lawyers of each Bank, there is also a standardized LMA credit contract, that was created by LMA, has pre-defined sections and content and is governed by UK Law. When two counterparties agree on LMA standard, then this provide quite a good comfort for both, that they already know upfront, what will be included there and that contract is really legally binding, enforceable etc. Further, LMA contracts are commonly used within sophisticated, multi-latteral structures like Syndicated transactions, Real-Estate Financing deals, Mezannine Financing and so on.
One important note, “true” LMA contract is governed by UK Law, but when counterparties agree on Czech Law for instance, then the contract is considered as “LMA like” only.
LMA Standardized credit agreement is quite extensive, as it contains usually 300 pages and more. However, as the template is universal, it is quite common that both Parties (Creditor and Borrower) confirm with each other, which sections have been adjusted and based on that the revision of drafted contract is a bit easier.

The main Sections/ Articles of an LMA standardized contract are following:

The Introduction and very first Article is dedicated to “Definitions” for whole contract, so that for all terms stipulated herewith and starting with big letter, there is usually some reference in the text of the contract. Further, explanatory rules – “Construction” are herewith attached, and provide more details and explanation how are certain Terms to be understood in whole contract context. Ans finally, there is a to “Third Parties Act” – specifications of claims of thirs Parties that may arise from concluded contract.
Article 2 is very critical one, as it describes kind of credit facilities granted and their modifications resp. the corresponding facility limits (amounts).
Article 3 defines purpose of the loan like general business purposes, investment or acquisition financing, refinancing of existing loans provided by other Creditors and many others.
Article 4 usually lists the Conditions precedent/ subsequent, depending on their relevance for each credit product within the structure and their time horizon for fulfillment; in connection with that Article 5 includes detailed summary of conditions for drawings, submitting the utilization requests and other processing issues.
Similarly, Article 6 and 7 are dedicated to issuance of Bank guarantees and/or Letter of credits, and specification under which conditions these may be drawn.
Article 9, describes the possibilities to provide so-called “ancillary products” – like ST revolvings, overdrafts, Bank guarantees, L/Cs etc., which are granted on separate billateral documentation between Borrower and only some Creditor or related entity, while these products benefit from base conditions stipulated in senior LMA and herewith concluded collateral; in addition for LMA there is valid rule, that Bank guarantees and Letter of Credits are issued only based on ancillary documentation.
Article 10 defines some “increment” uncomitted facilities that may be provided also in line with ancillary documentation.

When it comes to the repayment profile of the credit facilities granted, this is solved under Article 11, which may include even some attachments (spreadsheets), whereas detailed repayment schedule is displayed incl. the clarification, whether only interests are paid during the life-time of the loan, while the principal is due at the maturity (bullet payment).
Illegality, which is part of Article 12, makes reference to certain situations when the Creditor is not able to continue in funding the deal, so that each commitments become due and loans granted by this Creditor must be fully repaid. These situations are mainly represented by any sanctions towards certain countries, that are implied after the loans have been granted, so that the immediate obligation of the Borrower to repay the loan is based on this triggered.
In connection to this, cases of obligatory repayment are outlined within Article 13, especially as a consequence of changes in corporate structures, like Change of Control, which is the most common for instance and represent signifficant breach of the contract.
Pricing for the loans grnated based on this LMA, is to be found in Article 15, whereas further details like Default interests, Margin, construction of interests among others is herewith described. Interests periods and repayments are solved under Article 16, while Interests conventions and modifications for interest periods are within Article 17. Market disruption, special clause that was embodied into LMA standards after year 2008, is described under Article 17.3, which provides specific guidance in case of market illiquidity, whereas financial institutions are reluctant or simply enabled to deliver the market rate quotation and how to construct a proxy for sych situation.
Article 18 contains all Fees that are charged to Borrower, these include among others for instance commitment fee, arrangement fee and agency fee.
Article 19 is dealing with Accounting and Tax issues related to loan documentation, whereas some issues like indemnity for increased Taxes, VAT etc. may be included herewith as well.
Increased costs are further contemplated within Article 20, which is set to overcome the situation when the Bank might have reduced income from credit relationship given the changes in regulation and new legislative, which have been adopted after the loan was provided. Quite naturally, the Banks strictly prefer to have this section in place for a back-up plan of unexpected occurences, which becomes then subject to quite often discussions and negotiation with Clients. Due to fact that changes in banking law and adoption of new banking taxes is not so frequent situation, the real impact of this section seems to be over-estimated.
As concerns the Guarantees and indemnity, this is covered by Article 24, whereas exact cases are defined, when the Guarantees may be called (Payment default), and to what extent the Borrower is obliged to indemnity all damages and costs incurred by Borrower.
Article 25 refers to Representations, Undertakings and Events of Default. In this Section the Borrower confirms that all Obligations stemming from this loan agreement are valid, that he is allowed to enter into the agreement, that this agreement is not in conflict with other contracts, that he is not in Default on other contracts etc., so that this new loan agreement becomes trully enforceable.
Information covenants/undertakings are further described in Article 26, which states the form, interval and scope of financial figures to be regurarly presented by Borrower. This is very common obligation of each Borrower/Guarantor to inform the Creditors on his financial position and future outlook, based on which the Creditor makes an assessment, whether the financial covenants (outlined in Article 27) are fulfilled or breached.
Financial covenants usually include Net Leverage, Minimum EBITDA/Ratio, Solvency ratio, Debt Service coverage ratio (DSCR), CAPEX, Additional Borrowings and many others, which may be adjusted based on structure of the deal and profile of the company, if needed. Herewith is attached also Compliance certificate, that is required from Borrower to be submitted to Creditor in order to confirm that Borrower is in acompliance with financial ratios and has not breached the loan agreement.
General covenants, like MAC, MOC, Parri-passu, Negative pledge, Mergers, Acquisitions and many others are also contained under Article 28, whose breaching also represents serious situation, and if not waived by Borrower, then it may lead to situation described in Article 29.
A very important Article 29 is to define the Events of Default (EoD), which means, in what cases the Borrower breaches the contract and this is leading either to termination or acceleration. Also, in case of „big-tickets“ deals, usually Cross-default is included, as well to interlink current LMA with other existing Debts and agreements that has Borrower concluded with other Creditors. As a usual occurences leading to a EoD are breach of general covenants, information covenants and/or financial covenants including insolvency, invalidity and other negative aspects.
Some negotiations on applying Cross-Default or Cross-acceleration may be preceeding to this stipulation between the Creditors and Borrower, whereas application of Acceleration instead of Default is usually prefered by Borrowers as it is triggered after Cross-Default has been called, so that it still provides some maneovrues space so that other loans agreement may continue without their premature termination.
Any changes to Credit Parties are allowed according to Article 30, while the most relevant case is transferrability from Creditors to Related parties in Group (Head-Office of the Banks) or to Central Banks and Federal Reserve Fund, which is applicable for any restructuring Processing. Changes on Borrower side are allowed based on Lenders consent.
The roles of Agent, Security Agent, Arrangers (Participants) and Ancilliary Lenders are specified based on Article 33 stipulating preciselly their rights and obligations, incl. but not exclusivelly to sharing the Payments, voting rights (Lenders consent and „You snooze – You loose“ concept adopted) and many other issues are to be found here, which are reflecting the LMA standards. Also, an important part of relations between the Banks in Syndicate are solved by Inter-creditors agreement, to which references are made herewith as well.
No-Set off among the Borrower and Guarantor, however this is allowed among the Creditors (Article 37).
Final Articles conclude on mailing instruments, governed Law (UK by default in LMA or possibly some important international Judge institutions like International Chambre of Commerce may be applied as an alternative).
Naturally, there is a large count of Annexes attached to this agreement, in whose are certain details specified among other Conditions Precedent/Subsequent, Drawing request templates, Transfer certificate, Compliance certificate, Assginment rights agreement and many others.

Note: Article in this description refers to Section in LMA

In connection with BREXIT, as this event may have substantial impact on LMA contracts governed by UK Law, the Loan Market Association recommended to adjust the documentation via implementing Bail-in Clause, which would help to conclude on future governance of contract.

For more details on LMA as such, please click here.