LIBOR Transition: Is It Really Necessary to Review Every Single Loan Agreement?

As lenders start to prepare for the transition from LIBOR, practical concerns as to how to implement the change are coming to the forefront.  Many sources have highlighted the need for lenders to review the loan agreements in their portfolios, but not many have given much insight on the actual scope of review that is needed.

Best practices dictate that every loan agreement should be reviewed to see exactly what LIBOR terms are used, exactly where they are used and exactly what the LIBOR provisions say.  Even if a lender’s loan agreements generally follow a template, there are bound to be a few that vary.  Unless there is already a reliable list of these variances, all the loan agreements (in a perfect world) need to be reviewed to find these few that vary.  In larger, more negotiated loan portfolios, these loans that vary may be more than just a few.

All of this is obviously expensive and time consuming.  Is there a better way?  Our recent Alert explores that question.

Duane Morris’ LIBOR Transition Team:  Roger S. Chari, Chair, Joel N. EphrossAmelia (Amy) H. HuskinsPhuong (Michelle) Ngo, and Han Wang.

Will Borrowers Pay for LIBOR Amendments?

In a consensual lending world, a commercial borrower is usually obligated to pay for a lender’s expenses relating to a loan. Depending on the loan agreement, the borrower might agree to pay closing costs, enforcement costs if the loan goes bad, and fees and expenses for amending the loan agreement. Even if a loan agreement is silent, a borrower may find that the lender is unwilling to amend the agreement unless the borrower pays the costs. Regardless of the language or lack thereof, whether a lender can and should impose such costs may be an open question.

If the borrower is asking for an amendment, then it only seems fair that the borrower pay for the lender’s amendment costs if requested. In a committed loan, it is unusual for a lender to ask for an amendment that the borrower doesn’t also want―but if it does, it doesn’t seem fair for the borrower to have to pay the lender’s costs.

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