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The practical implications of Brexit for lenders and borrowers (2 of 3)

In the first article in our series we focussed on the practical implications of Brexit for lenders and borrowers, and their finance agreements. In this second article, we consider more specific impacts on the legal documentation and what points to look out for under your facilities agreement.

Practical steps

Look at the currency, and drawing and repayment profiles, and consider if these will be impacted indirectly by moves in exchange rates, inability to move funds, income and payments freely. Consider whether it would be useful to separate lending and/or separate tranches available to specific borrowers (to/within cross-border group) or from specific lenders.

If there is likely to be to vulnerability to EU-based payment and clearing systems, and ability to meet payments and repayments on time, then consider how this will impact payments and repayments.

What reliance on grants and subsidies? And impact on covenants or representations, or events of default?

In anticipation of an economic downturn, might financial covenants be tripped in your facilities agreement? Can you negotiate headroom on the covenants and/or incorporate more generous add-backs? Do you need to agree changes to financial covenants based on an individual entity or consolidated accounts of a pan-European group? Should you consider refinancing now, given current market terms and erosion of covenant protection?

Information covenants and compliance covenants - do these need to be reviewed specifically for EU operations, suppliers, customers, licenses, operating systems, etc. On Brexit, the UK will become a third country for the purposes of transferring personal data outside of the EU under the GDPR - on what legal basis will the business rely for transfers of personal data? Will this impact on the finance agreement, provision of information, information covenants, etc?

Representations and repeating reps – does the agreement require ongoing representations that all EU regulations are met? How is that defined? Do you need to amend the repeating reps to reflect the position going forward? Are there any other representations that might be difficult to comply with, going forward, from a practical perspective? They too might need to be reviewed and amended.

Events of default – do or should these include an event causing an adverse outcome or adverse impact on the business” or a change to the insolvency regime? Might this be triggered with Brexit? And what about cross-default & cross-acceleration provisions – look at these again to see what might happen on Brexit or any of the impacts following. Look at all of this in the context of the whole deal, including other group companies, other lenders and other financing arrangements. Also, look at how default is to be identified, policed and monitored.

Cross-collateralisation – similarly, where the group has cross-collateralised security, any changes to the documentation for any member of the group, or to their security or guarantees, may impact on the group as a whole and on the other members of the group individually.

Increased costs - is there or does there need to be specific carve-in or carve-out for Brexit, regulatory changes, new or additional licences, etc?

Do definitions refer to EU or EU law, and will those need to be changed?

How will a judgment obtained in the UK under the facilities or security agreements be enforced in the EU, or vice-versa, after Brexit?

From the lenders’ perspective, might lenders in UK will have to comply with both UK and EU regulation/supervision where it is a cross-border organisation or where lending cross-border? Consider a structure of lending through appropriately located front lender and on-lending (you would need to consider if this is legal under the applicable regulations, if there would be additional regulatory or licensing imperatives, credit risk, finance risk, need for back-to-back intra-lender contracts, capital adequacy requirements, tax liabilities, enforcement issues, etc).

And, might banks need to include bail-in terms specifically covering access to alternative bail-out provision? This will be relevant where there are hedging arrangements and possibly also where there is asset finance where the assets are in Europe.

Some key points to note

  • This article does not provide an exhaustive list – these are only some of the more likely impacts and implications for loan arrangements;
  • Please take advice from your legal team as even minor amendments can have wider implications than appear at first. In particular, where there are changes to facilities agreements, there are likely also to be implications for security and guarantees, and the whole transaction should be looked at in that context;
  • Where there is a borrower group then consider the cross-collateralisation position and the knock-on effect of an issue for any one of the members of the group on the rest, and on their loan arrangements;
  • Regardless of whether we exit in March, some time after or not at all, it was clear before the referendum in June 2016 that UK was pushing for changes in its relationship with EU – there is no going back to how it was before;
  • The government has the power to implement and make changes to in-flight financial services legislation for two years after the UK withdraws from the EU in a no-deal scenario.


This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2022.


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