Mr. Z
Address….
Dear Sir,
RE: LEGAL OPINION ON FACILITY AGREEMENT A/C COMPANY 1.
We refer to your letter dated 11 July 2007 on the above subject.
You have provided us with an unsigned Facility Agreement dated 31 October 2006 (“the Facility Agreement”) between COMPANY 1 (“COMPANY 1”) and the Syndicated Lenders named therein.
Our legal opinion on the your queries in connection with the Facility Agreement are as follows:
a. Whether the Facility Agreement bars COMPANY 1 from availing any further financing?
The Facility Agreement does not bar COMPANY 1 from availing further financing; however it restricts further borrowing under the terms therein.
Clause 19.11 of the Facility Agreement states as follows:
“19.11 A) Further Borrowing
a) The Lenders hereby agree that the Borrower shall be entitled to unsecured borrowing or shareholders loan as long such borrowing does not dilute the Debt Equity Ratio and other financial covenants under the Finance Documents are maintained.
b) The Lenders further agree that the Borrower shall be entitled to avail:
i) financing of a maximum limit of USD 200.00 million from the Major Contractors; and
ii) working capital facilities of a maximum limit of Tk. 2.00 billion, Islamic Financing of BDT 1.00 Billion and the Arranger shall have first preference for arranging of the facilities.”
Therefore, according to Clause 19.11 A) a), COMPANY 1 is entitled to unsecured borrowing without the consent of the Syndicated Lenders provided that the conditions in the said clause are satisfied.
Again under Clause 19.11 A) b) ii), COMPANY 1 is entitled to avail working capital facilities of a maximum limit of Tk. 2.00 billion from any party without the consent of the Syndicated Lenders provided that the Arranger, Industrial & Infrastructure Development Finance Company Limited (“IIDFC”) shall have the first preference for arranging of the facilities. Hence the Bank may provide the unveiled limit granted under the Facility Agreement to COMPANY 1 provided that financing is arranged by IIDFC or IIDFC waives its first right to arrange for such funds.
Any financing outside Clause 19.11 will require NOCs from all the Syndicated Lenders in accordance to Clause 10.1.2.
b. Whether under the Facility Agreement, COMPANY 1 has capacity to borrow money from parties other than the Syndicated Lenders, in particular from BANK 1?
COMPANY 1 is permitted to borrow from parties (including BANK 1) other than the Syndicated Lenders subject to restrictions under Clause 10.1.2 and Clause 19.11.
Please note that, we believe COMPANY 1 is a sister concern of BANK 1 and the two companies may have some common directors.
In this regard, Section 27 of the Bank Companies Act 1991 states as follows:
“27. (1) No banking company shall –
(a) Make any loans or advances against the security of its own shares; or
(b) Grant any unsecured loans or advances or make any loans and advances on the guarantee of the following persons or institutions:
(i) Any of its directors;
(ii) Any of the family members of any of its directors;
(iii) Any financial institution or private company in which the banking company or any of its directors or any of the family members of its directors are owners or have any interest;
(iv) any public limited company which is controlled by the banking company or by any of its directors or any of the family members of its directors or wherein any of the said persons have such amount of share that on the strength of which he is empowered to vote for 20% or more of the share holding of the company.
(2) No banking company shall, except with the approval of the majority of the directors, excluding the concerned director, make any loan or advances to the following:
(a) any of its directors; or
(b) Any person, financial institution or company in or with which the interest of any director of the banking company is connected as a partner, director or guarantor.
Explanation: In this subsection, “Director” includes the wife, husband, father, mother, son, daughter, brother sister and other dependents of the Director.”
Therefore, according to Section 27 (2) (b) of the Bank Companies Act 1991, where there are common directors, BANK 1 may provide financial facilities to COMPANY 1 (a company in which some directors of BANK 1 or their family members may be directors or some directors of BANK 1 or their family members may own more than 20% shares in), provided that such facility is approved by the majority of the directors of BANK 1 by a resolution of the Board of Directors in a board meeting in which the concerned directors of BANK 1 (i.e. those directors who are also directors of COMPANY 1) are not present.
c. Whether the Facility Agreement places any restriction on financing against cash collaterals i.e. covered by 100% cash in the form of margin or Lien over Term Deposit?
Under the terms of the Facility Agreement all the assets of COMPANY 1 is under a floating charge in favour of the Syndicated Lenders, including the balances in the accounts of COMPANY 1 (cash).
Unless the margin (the amount which is legally required to be the margin limit) is a requirement of Bangladesh Bank or any other authorities in the ordinary course of business, the restrictions under Clause 10.1.2 will kick in. The restrictions under Clause 10.1.2 applies to a lien over term deposit.
d. Whether the Facility Agreement places any restriction for creation of any additional charges on the assets of COMPANY 1?
Subject to Clause 19.11, the restrictions with regard to creation of further charges on the assets of COMPANY 1 is embodied under Clause 10.1.2 of the Facility Agreement which states as follows:
“10.1.2 ii) The Borrower shall be permitted to create charges for securing further financing in excess of the financing stipulated in Clause 19.11 A) & b), provided that the Lead Arranger has received:
A) a new business plan in relation to financing by prospective new lenders; and
B) certification from the auditors of the Borrower (which shall be an internationally reputed form and acceptable to the Lead Arranger) that the Borrower has complied with all covenants, representations and warranties herein and that no Event of Default has occurred.
iii) Upon receipt of the foregoing, Lead Arranger will provide its no objection certificate to the borrowing and creation of charges (the “NOC”) to the Borrower within forty five (45) Business Days from the date of receipt of such documents.
(iv) In event that after forty five (45) Business Days from the date of receipt of such documents, the proposed NOC is not in place, it will be presumed to be in place…”
Prior to creation of any further charges, notwithstanding the provisions of Clause 10.1.2 (iii) and (iv), COMPANY 1 will require NOCs from all the Syndicated Lenders.
Clause 10.1.2 (iii) states that “Lead Arranger will provide its no objection certificate”, which merely binds the Lead Arranger and no other parties. Moreover inference cannot be made even that the Arranger represents or act for and on behalf of the Syndicate Lenders in terms of the provisions of the Facility Agreement as this role is the role of the Facility Agent pursuant to Clause 16 of the Facility Agreement. The Lead Arranger’s crucial role is to arrange financing for COMPANY 1 under the terms of its mandate letter and pursuant to the Facility Agreement and nothing more.
In fact, an NOC from the Lead Arranger with regard to further charges to be created over the assets of COMPANY 1 is obsolete. The reason the clause has been incorporated in the Facility Agreement is because the same has been a provision agreed upon between COMPANY 1 and the Syndicated Lenders and we were requested to incorporate the same in the Facility Agreement.
If you have any further query, please do not hesitate to contact us.
Thanking you.
Yours faithfully,
………………….
For: “The Lawyers & Jurists”