After a few years living and working as a finance lawyer in Australia, there are a few things I brought with me back to the UK. Among the alarming spider's nests on the underside of our garden furniture and a passing interest in Aussie Rules football ("Go Bombers"), was an appreciation of some of the interesting market divergences in documenting loan transactions.
One aspect that I found helpful was the use of "Review Events" in loan agreements. Review events are an additional category of events that sit alongside the usual suspects of Events of Default or Potential [Events of] Default. Essentially they are designed to give the borrower flex. They create a more specific regime around some of the typical grace periods or cure mechanisms that are drafted into UK documents.
Review events might include:
- Change of control or a listing event.
- Change of tax status.
- Failure to satisfy conditions subsequent.
- Change of key personnel.
- Insolvency events in relation to certain members of the obligor group.
Examples of other transaction specific review events include:
- Cost overruns.
- Practical completion that will overshoot a long-stop date.
- Material destruction of a property where there are insufficient insurance proceeds.
However the range of events is really limitless, bounded only by the commercial positions of the parties. The real distinction in the UK and Australian approach perhaps comes from the way in which the consequences of a review event are documented in a loan agreement. Typically review events trigger defined negotiating or consulting periods. Essentially the lender and borrower agree to come together to seek a solution, in good faith, and that during such period no enforcement action will be taken (effectively a standstill period), with a view to:
- Amending the finance documents in a manner satisfactory to each of them (lenders may focus on pricing…).
- Providing extra security or credit support.
- Restructuring the facilities.
- Taking any other steps to overcome or reduce the effect of, or risk associated with, the Review event.
- Cancelling and repaying the facilities.
If upon the expiry of the standstill period the parties have not reached agreement on how to remedy or overcome the effects of the consequences of the review event this will trigger the usual acceleration mechanisms and a deemed event of default.
Review events will usually be drawstops and will prevent loan rollovers.
They will also be pulled into:
- Repeating representations.
- Undertakings to notify.
- Account waterfall or application of proceeds provisions (if a review event is subsisting, money is applied in a certain way).
- Cross-default (review events in other documents).
- Event of default triggers (failure to remedy a review event).
Review events may be expressed either to displace, or work alongside, Potential Default regimes, which are traditionally understood to be more broadly events or circumstances that would become a default with the giving of notice, the making of a determination under a finance document or the passage of time.
Rather the focus of the review event is the fact that some lenders find it advantageous to hardwire in the consultation and negotiation regimes that are often agreed after the event and on a case by case basis in UK deals. That is, where default or potential event of default triggers lead to frantically drafted consent and waiver letters, often including the same cure mechanisms and consequences as are pre-emptively contemplated by review event provisions. Baked-in review events can also head off arguments in the initial documentation stage about materiality or hair-triggers. They set a clear and defined regime for flexing the finance terms that may be more palatable to borrowers and lenders alike.
In the real estate finance context, as we appear to approach the top of the business cycle there may be a role for review events to play in allowing for transactions to adapt to some of the tremors. CVAs, Brexit, LIBOR discontinuance and property revaluations might all be circumstances that lend themselves to these kinds of arrangements.