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Key tax considerations for a UK corporate borrower—checklist

Key tax considerations for a UK corporate borrower—checklist This Checklist details the key direct and indirect tax issues that a corporate borrower within the charge to UK corporation tax (a UK corporate borrower) should consider both before entering into a loan and throughout the term of a loan. It is intended to be used as a Checklist for a tax adviser of a UK corporate borrower and includes a brief description of the relevant tax issues and provides space for the tax adviser to make notes. This Checklist assumes that: • the borrower is a company within the charge to UK corporation tax in respect of the loan, ie it is either a UK tax resident company or a non-UK tax resident company for which the loan is attributable to its UK permanent establishment (a UK PE) or attributable to the non-UK resident company's trade of dealing in or developing UK land, and • the borrower and the lender are unconnected parties acting at arm's length It applies both to...

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Introductory guide to financial covenants

This Practice Note provides an introductory guide to financial covenants (financial undertakings). It explains why financial covenants are used before discussing how financial covenants are set and tested.It then explains certain common financial covenants used in commercial finance transactions including:•minimum net worth test•gearing ratio•leverage ratio (or debt to equity ratio)•current ratio (or acid test ratio)•cashflow ratio•interest cover ratio, and•loan to value ratioNote that this Practice Note does not provide a detailed explanation of financial covenants on specialist transactions. However, the last section links out to further information on using financial covenants in various specialist transactions.Where appropriate, this Practice Note highlights relevant provisions in the Loan Market Association (LMA) senior multi-currency compounded rates/term rates term and revolving facilities agreement for leveraged acquisition finance transactions (the LMA leveraged facilities agreement) (available to LMA members on the LMA website).It should be noted that the LMA investment grade facility documentation does not contain financial covenants as they are considered to be too transaction specific on investment grade transactions.What are financial covenants?Undertakings (also known as...

Leveraged finance—financial covenants

Financial covenants are used on a wide range of different kinds of banking transactions to monitor and test the financial performance of the borrowing company or group. This Practice Note explains the use of financial covenants in a leveraged finance context. It explains: •the covenant package traditionally used on a traditional leveraged finance transaction•what is meant by covenant lite and covenant loose •how financial covenants are tested•other uses of financial ratios, and •equity cure, mulligan and deemed cure provisionsFor information on financial covenants more generally, see Practice Note: Introduction to financial covenants. For information on use of financial covenants in specific types of finance transactions (including leveraged), see Leveraged finance—financial covenants—Financial covenants in finance transactions—further information.The Loan Market Association and European Leveraged Finance Association published a guide in November 2020 entitled Best Practice Guide for Term Sheet Completeness, for use on leveraged finance transactions. Practice Note:Best Practice Guide for Term Sheet Completeness—Explainer contains an explanation of terms (including financial undertaking related terms) contained in the Best Practice Guide.See also the...

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Bonus schedule—EBITDA

Bonus schedule—EBITDA This Precedent is a sample bonus schedule, to be inserted as a schedule to an employment contract or director’s service agreement, providing for entitlement to an annual bonus to be calculated by reference to a company’s earning before interest, tax, depreciation and amortisation (EBITDA). 1 Definitions 1.1 In this Schedule, the following expressions will, unless the context otherwise requires, have the meanings set opposite them: Accounts • the audited profit and loss account of the Company; Board • [the directors of the Company present at a meeting: (i) of directors of the Company or (ii) of a duly appointed committee of directors of the Company[, such meeting to be convened and quorate in accordance with the articles of association of the Company and the Companies Act 2006] OR the directors of the Company present at a meeting of directors of the Company[, such meeting to be convened and quorate in accordance with the articles of association of the Company and the Companies Act 2006] ]; Bonus...

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In the context of valuing damages for breach of warranty on a share sale, is there any case law on an issue arising post-sale which is a 'one off' cost which may impact earnings before interest, tax, depreciation and amortisation (EBITDA) for that year, but would not impact on EBITDA every year going forward?

In the context of valuing damages for breach of warranty on a share sale, is there any case law on an issue arising post-sale which is a 'one off' cost which may impact earnings before interest, tax, depreciation and amortisation (EBITDA) for that year, but would not impact on EBITDA every year going forward? General principles If a seller gives a warranty in a share sale and purchase agreement (SPA) that proves to be inaccurate, untrue or misleading, the buyer will have a contractual claim for breach of warranty against the seller. This will be regardless of whether such breach of warranty causes a one-off loss or a loss that impacts numerous years. To bring a successful warranty claim the buyer must show that: • the breach of warranty has caused a loss in the value of the shares, so that where the target company incurs a liability as a result of a breach of warranty but the market value of the shares is not affected,...

What specific points should be taken into account when drafting valuation provisions on the transfer of shares where one party buys out the other party's shares to resolve deadlock or on a compulsory transfer of shares?

What specific points should be taken into account when drafting valuation provisions on the transfer of shares where one party buys out the other party's shares to resolve deadlock or on a compulsory transfer of shares? Valuation can be a very difficult issue, particularly where relations between joint venture parties have broken down. Different valuers can often reach very different conclusions based on the same accounts or other valuation materials, depending on the assumptions they make. There are broadly two different approaches to the issue of valuation. One is to set out in as much detail as possible in the joint venture agreement, the basis of valuation and the assumptions on which valuers must proceed. The other is to use 'market forces' to settle a price. If the first approach is chosen, the parties will need to agree a valuation method appropriate to the joint venture business. It will not be enough to specify 'market value', since there is rarely any genuine 'market' for a stake...

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LSTA responds to IOSCO’s Final Report on Leveraged Loans and CLOs

The Loan Syndications and Trading Association (LSTA) has responded to the International Organization of Securities Commission (IOSCO)'s Final Report on 'Leveraged Loans and CLOs Good Practices for Consideration'. The Final Report’s good practices remain largely in their original form, but several important changes requested in the LSTA’s feedback have been made.

IOSCO publishes final report on good practices for consideration for leveraged loans and CLOs

The International Organization of Securities Commissions (IOSCO) published its final report on ‘Leveraged Loans and Collateralised Loan Obligations (CLOs) Good Practices for Consideration’. IOSCO has focused on examining the impact of fewer and looser covenants on investor protections, whether there is adequate transparency in these markets, and the scope for potential conduct-related issues to arise.