Capital & Financing

The Credit Agreement Clause by Clause

A 300-page document has about twelve provisions that decide outcomes. Learn where they live, what each one does, and the order to read them in so you find the risks before the deal closes.

  • Expert
  • 13 min total
  • 13 chapters

What decision this helps you make: What to read first in a credit agreement, which provisions to spend negotiating capital on, and how to brief someone on a document you have had for two days.

What this topic is

A syndicated credit agreement has a standard architecture — ten or eleven articles in a conventional order, from definitions through the credit mechanics, conditions, representations, covenants, defaults, the agent, and the miscellaneous provisions. The order is near-universal across US market documents, which means once you know the map you can navigate any of them.

Why it matters

Most people read credit agreements front to back, run out of time somewhere in the negative covenants, and never reach Article 10 — where the amendment provisions, the assignment restrictions and the sacred rights live. Those are the provisions that decided the largest lender-versus-lender disputes of the last five years. Reading in document order is reading in order of decreasing familiarity and increasing importance, which is exactly backwards.

Who should learn it

Credit analysts and direct lenders doing document diligence, CFOs and treasurers who have to live inside the document for seven years, and anyone who needs to brief a committee on what a facility actually permits.

What you will understand

  • The standard architecture of a US credit agreement, article by article
  • The twelve provisions that do most of the work, and where each one sits
  • How the amendment article — sacred rights, class votes, pro rata sharing — became the most contested part of the document
  • A repeatable reading order that surfaces the real risks in a few hours rather than a few weeks

Prerequisites

Common misconception

"The important part of a credit agreement is the covenants." The covenants tell you what the borrower may not do, and the exceptions inside them tell you what it may. But the provisions that have destroyed the most lender value recently are not in the covenant article at all — they are in the definitions (what EBITDA means), in the payments section (the exceptions to pro rata sharing), and in the amendment article (what a majority of lenders can do to a minority). Article 10 is where the document decides who you are actually negotiating with when things go wrong.