Utilisation CLAUSE 5: UTILISATION – LOANS

Clause 5.1: Delivery of a Utilisation Request

The form of Utilisation Request is set out in Schedule 3.

A Borrower or the Parent on its behalf is required to deliver to the Agent a duly completed Utilisation Request no later than the Specified Time. The Specified Time is set out in the timetable in Schedule 11. The Leveraged Facilities Agreement requires that the Utilisation Request be delivered by 9.30am on the third Business Day prior to the Utilisation Date (for advances in euro and other non-sterling currencies) and by 9.30am on the Business Day prior to the Utilisation Date (for sterling advances).

Borrower Notes

This timing for delivery of Utilisation Requests may need to vary depending on syndicate size and the logistical requirements of notifying all of the Lenders who are to participate in the advance. See further “Availability” in the “Introduction to Loan Finance” section of the Handbook.

Borrowers may want to make provision for the Agent to agree shorter periods for Utilisations made on the Closing Date.

Clause 5.2: Completion of a Utilisation Request for Loans

Clause 5.2(a)(ii): A Utilisation Request may only be delivered on a Business Day within the Availability Period.

A “Business Day” for these purposes requires banks to be open for general business in London and the principal financial centre of the relevant currency or, in relation to euro, a TARGET Day. A “TARGET Day” is any day on which the TARGET2 system is open for the settlement of payments in euro. TARGET2 is open on all weekdays every year except New Year’s Day, Good Friday, Easter Monday, the first Monday in May, Christmas Day and Boxing Day. Note that this means TARGET2 is open on the last Mondays in May and August, which are bank holidays in England.

Clause 5.2(b): Although after the Closing Date only one Loan may be requested in each Utilisation Request, there is no limit on the number of Utilisation Requests

Clause 5.3: Currency and amount

The Leveraged Facilities Agreement assumes that the Term Facilities will be available and will remain outstanding in the Base Currency (see also Clause 4.3 (Conditions relating to Optional Currencies) above). If this is not what is intended, appropriate amendments will need to be made to the Agreement.

Lenders are likely to want to specify a minimum amount for utilisations to avoid the administrative hassle of small drawings. These amounts will need to be negotiated according to the circumstances of the transaction to ensure that the Company has sufficient flexibility to fund smaller amounts that it may be required to pay, for example, the consideration for further shares in the Target in connection with a public offer after the offer has been declared unconditional.

Clause 5.5: Limitation on Utilisations

Clause 5.5(a) provides that the Revolving Facility shall not be utilised unless each Term Facility has been utilised. This is designed to ensure that the Company does not use the Revolving Facility before the Acquisition has completed and been funded. The Lenders are providing the Revolving Facility in conjunction with the Term Facilities and do not want to find that the Revolving Facility is drawn and the Term Facilities are not. Clause 5.5(b) provides that a Term Facility may only be utilised on the Closing Date and only if all of the Terms Facilities are utilised pro rata on that date. The requirement to use the Facilities pro rata is intended to ensure that the Facilities are not used selectively (to obtain a pricing benefit or otherwise) and any amounts drawn under the Term Facilities are spread across the Term Facilities in the proportion intended by the Lenders. Whether it is appropriate for a Term Facility only to be capable of being utilised on the Closing Date will depend on the circumstances of the transaction.

Borrower Notes

Paragraphs (c) and (d) are limits on the aggregate amount of the Revolving Facility comprising Letters of Credit or Ancillary Commitments. The appropriate limits will depend on the Group’s requirements in relation to these ways of utilising the Revolving Facility.

Clause 5.6: Cancellation of Commitment

This provides for the automatic cancellation of unused commitments at the end of the relevant Availability Period.

Clause 5.7: Clean down

The intention of this Clause is to provide evidence to the Lenders that the working capital facilities are being used for working capital purposes and not for permanent financing. Hence the Clause requires that for a certain period of days every year or half year, amounts outstanding under the Revolving Facility and the cash element of the Ancillary Facilities are reduced to a specified level (potentially zero) when netted off against the Group’s freely available cash resources.

Borrower Notes

This provision is optional. Many Groups will not be able to reduce the balance on the Revolving Facility to zero in each year and many stronger Borrowers successfully resist the inclusion of a clean down requirement.

Where this provision is included, Borrowers may wish to delete the requirement that compliance with this test is certified by two authorised signatories or a director of the Parent and to limit the test to one period in each financial year for the first few financial years following the Closing Date, rather than a six-monthly test applicable for the duration of the Facilities.

CLAUSES 6 and 7: UTILISATION – LETTERS OF CREDIT AND LETTERS OF CREDIT The Revolving Facility may be utilised by way of Letters of Credit. Clauses 6 and 7 set out the procedure and particular terms applicable to utilisations by way of Letters of Credit.

Letters of Credit must be substantially in the form set out in Schedule 12 or in a form agreed with the Issuing Bank and the Agent (see definition of “Letter of Credit”). Note that in this respect, the Leveraged Facilities Agreement is more Borrower-friendly than the LMA Letter of Credit Option which requires Borrowers to obtain Majority Lender consent for an alternative form.

The provisions of Clauses 6 and 7 and Schedule 12 are substantially based on the LMA’s Letter of Credit Option, published as part of its suite of Investment Grade Documents.

These Clauses envisage that Letters of Credit will be issued by way of collateral, to support the Borrowers’ obligations, i.e. they will be Standby Letters of Credit. Under a Standby Letter of Credit, the Issuing Bank’s payment obligation is akin to a guarantee, in that the obligation to pay is triggered by the failure of the Borrower to pay the beneficiary. It is possible for these provisions to be adapted for the issue of

The Letters of Credit are fronted by one or more banks (the “Issuing Banks”), and backed by indemnities from the Borrowers and the other Lenders; these provisions will not be appropriate where a Borrower needs unfronted Letters of Credit, issued by each member of the syndicate rather than any one Lender (which would in general be an unusual requirement in the context of leveraged facilities). The Leveraged Facilities Agreement assumes that one or more Lenders commits at the outset to be an Issuing Bank.

The indemnities in Clause 7 follow the usual approach: after the Issuing Bank has received a demand for payment, the Agent demands payment from the relevant Borrower. The other Lenders (in Clause 7.3(b)) also give an “on demand” indemnity, to reimburse the Issuing Bank where the Obligors fail to do so, pro rata. They have a matching indemnity from the Borrowers (see paragraph (d) of Clause 7.3). A drawing made by a Borrower under the Revolving Facility in the same currency and amount as the Letter of Credit to fund its obligation to pay the Issuing Bank is regarded as a Rollover Loan.

The Agreement contemplates payment by the Borrowers of a fronting fee (typically 0.125% of the Letter of Credit amount) to the Issuing Bank(s) and a letter of credit fee being payable on outstanding Letters of Credit to all the Lenders; the letter of credit fee usually accrues at the same rate as the Revolving Facility Margin (see Clause 17.5 (Fees payable in respect of Letters of Credit)).

Note that the Issuing Bank’s consent is required for all Lender transfers involving the Revolving Facility (see further paragraph (b) of Clause 29.2 (Conditions of assignment and transfer)).