Abstract
Loan agreement assumes a crucial role in defining credit structure. Explicitly defining the terms and conditions of a credit facility consolidates the loan agreement. A critical aspect of loan agreement is the inclusion of operating covenants. Covenants establish acts that the bank and borrower should, or should not, perform. This ensures that neither the bank nor borrower can willfully truncate a loan. In effect, covenants strengthen loan agreements. Besides covenants, a typical loan agreement contains specific conditions precedent to drawdown, representations and warranties, and events of default. These slippery clauses of a loan agreement often cause relationship friction between a bank and borrower. This chapter examines critically how banks enforce the slippery issues of corporate loan structure. It also examines how borrowers tackle banks on the same front. Literature search, analysis, and discussion shed light on the basis and probable conflicts of lending and borrowing money on those slippery terms.
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