Reading Loan Agreements. Any corporate banking guys here?

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vik2000

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I recently joined the corporate banking team at a bank and mastering reading loan agreement (specifically on loan syndications) is very crucial part of the job. Would be great if anyone here has experiences in a similar role and can offer some suggestions as to how one can improve on understanding all the clauses. I know reading more will help but I would appreciate if anyone can share some tips in overcoming those ridiculous long sentences written by lawyers. Also, any websites or books that are helpful?
Thanks in advance.
 
I’m not in corporate banking, but I read a lot of loan documents for fun on nights, weekends, and holidays. The only reliable solution I’ve found is to re-write the tricky sections as bullet points with sub-bullets and sub-sub-bullets, etc. As you mentioned, the more of them you read the easier it will get, but they can still be difficult. I think you’ll also find that each major law firm has it’s own style and structure, so you’ll start to go faster as you see more and more from the same firms.
 
read one and write down every question that comes to mind, then try to carve out some time w/ someone senior to go over them. as stated above learning by doing is best.
 
Thanks guys. I guess the only way is to read more? I can definitely do that but sometimes even if I understand a clause, I can’t figure out why it was put there (like the intent of the borrower to have that in the credit agreement). I was hoping there would be some place where it explains what each section is really about and some of the common things to look for.
 
I always try to put together a term sheet with the major deal points before I have the agreement drafted. This gives me something to go back to if the seller come down with amnesia. You can also do the opposite and re-create a term sheet after reviewing the agreement. This will put a lot of the deal terms in context.
Other than that it’s just a matter of building up your experience so that you know where the hot spots are. I would guess these hot spots represent less than 1% of the words in the agreement but make up 99% of its meaning.
 
chad.sandstedt wrote:I always try to put together a term sheet with the major deal points before I have the agreement drafted. This gives me something to go back to if the seller come down with amnesia. You can also do the opposite and re-create a term sheet after reviewing the agreement. This will put a lot of the deal terms in context.
Other than that it’s just a matter of building up your experience so that you know where the hot spots are. I would guess these hot spots represent less than 1% of the words in the agreement but make up 99% of its meaning.
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I didn’t know that the Term Sheet could be an option. I am in lending and we always do a Term Sheet. In fact, a good chunk of the loan contract is copy pasted from the TS at my bank.
I am not sure what you mean by re-creating a term sheet after the agreement.
@ TS: I work in structured financing for infrastructure projects which is extremely paperwork heavy, so I feel you brah ;). All I can say is that at some point it will all start to make sense. I do make myself some kind of a map to make sense of it all. Many clauses in loan agreements are there to adress some kind of risk. Understand the “risk profile” of your project is obviously a priority.
Also, as Chad has said, the hot spots represent a very small amount of the whole bla bla. I think a challenge when you start out is to be able to focus on what’s crucial in priority, and then on what is less relevant. I hope you get good guidance, it will make your life easier.
The rest is just experience and these weird sentences and formulations tend to always repeat themselves.
My 0.02.
 
Bullet points above are a great idea. I’ve never considered that before but kudos to you sir (or madam)!
I recommend finding someone helpful at your level or maybe 1 above/below depending on your firm’s vibe. Pull down their docs from a deal that’s very far along in the process, and read the docs as if you’re following the deal from inception.
Also relax. Although it may seem otherwise, no one at the firm expects you to know much. Give it a few months and you’ll likely find you’re picking it up faster than your group gives you credit for.
 
I work in corporate banking and reading loan docs is probably the most boring part of the job, but here are my hot points to focus on:
1. Covenant language and how they calculate certain ratios- For example, simply switching certain pieces from the numerator to the denominator, excess cash flow recaptures, or inclusion of what goes into a capex limitation are all big points for credit admins. Know EXACTLY how to calculate and what the effects are compared to standard covenant language.
2. Waterfall Provisions- How the debt gets paid back in a workout scenario. Generally, traditional senior bank debt gets paid first (revolvers and term debt), then derivatives, then etc… Sometimes the agent will try and sneak in that their derivative products are on the same level as the traditional senior debt, etc. Just know that piece well if you’re on the syndication side selling debt becaue the people you talk to will want to know.
3. Who guarantees and how much- Usually it’s standard to have all material US subs and up to 66 2/3% of material non domestic subs (or the max IRS limitations).
Like I said, this is the most boring part of the job. However, you can usually skim through most of it and focus on those three hot points. They will come up every time you talk to someone about the structure. Clearly, there is going to be important stuff for each deal, but there is no reason to straight up read through an entire loan doc (which would take about a month and you usually have about 2 days for doc review before closing, if you’re lucky). Most of the language is boiler plate and you will get a feel for that with time.
 
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