The development of this concept is not so simple to the letter – it requires careful reflection. Well done, but it should work. Instead of trying to specify all possible conditions and provisions that could be used in the portfolio of loan contracts to be modified, you usually describe them on the basis of their actions, with some examples of clarity. Once the terms and rules have been described in this way, they can be removed wherever they appear in the loan agreement, without having to refer to certain section numbers. Then insert the new sofr conditions and provisions into a new section instead of trying to bring each provision to the location of the similar provisions of LIBOR and, in general, to provide that SOFR loans are available to the extent that libor loans were available, subject to the new requirements set out in the sofr provisions. A general descriptive change such as this could be universally applied to a large number of LIBOR loans and loan forms in a lender`s portfolio, from short, empty forms rarely negotiated, to unionized loan contracts that are hundreds of pages long. The lender`s advisor or the borrower`s advisor would be unlikely to know the terms and conditions of all the countless credit documents or to execute the terms of the offer. Since the amendment is not intended to specify all specific conditions and provisions, the amendment should not be tailored for each credit contract that is removed from a lender`s credit models. A standardized form is much faster and easier to document and negotiate for the lender`s advisor and the borrower`s advisor.
In addition, the concept is easy for bankers to explain and understand for borrower executives, and the descriptive language of the amendment may better reflect the concept. All of this can lead to a simplified and more efficient modification process for lenders and borrowers. Costs are expected to be significantly lower than a traditional process of due diligence and modification, making it more attractive for borrowers to meet their obligations to pay for credit changes. And operationally, the application of a new SOFR condition can make a lender`s entire loan portfolio consistent in the future. This traditional approach requires detailed due diligence for each credit contract, in order to identify and catalogue any unexpected discrepancies. As noted above, individual changes are required at least for loans with spreads. Tracking these discrepancies and doing them properly requires an increased degree of diligence and credit verification – not only by the lender`s advisor, but also by the borrower`s advisor – to ensure that the change is correct. All of this takes time, of course, and time is money.
Changes must be made in accordance with the relevant provisions of the original loan agreement. Our amendment agreement is at odds with the corresponding provision of our Long Form Loan Agreement. With all these potential benefits, is it important that a universal form of general and descriptive change does not present the technical precision of an adapted loan change? Is all this really necessary? At the end of the day, LIBOR leaves.