INTRODUCTION

As a banking & finance lawyer, you typically represent either the borrower or lender in finalizing a loan transaction. These loans can be for a wide variety of purposes including acquiring a company or asset, funding a new business line or expansion, refinancing existing and more expensive debt, or for general corporate and working capital purposes. Given how each of these involve different commercial considerations and counterparties, your work likely requires you to collaborate with lawyers from multiple practice areas depending on the objective or asset being financed (e.g. real estate, aviation, shipping, infrastructure and M&A). The complexity of the deal (which may require you to work with tax, regulatory and competition lawyers) also varies depending on whether it is purely domestic or cross-border, whether it takes place within a regulated industry, and whether the borrower is investment-grade or has weaker financial strength and creditworthiness.

SUB-AREAS

• Straightforward lending typically refers to a bank lending money to a borrower on repayment terms (governing loan term, interest rate, etc) set out in a loan agreement. This can be bilateral in nature between the one bank and the borrower or on a syndicated basis where the loan is provided to the borrower by a group of lenders.
• Asset financing is provided to corporations to finance their purchases of assets ranging from airplanes and ships to high-end or large-scale machinery and equipment. To obtain security for the loan, the lender typically places a charge over the asset. Key parties involved in asset financing are the lending banks, manufacturers and the borrower (which could be large airlines or maritime carriers). Real estate financing operates similarly, with a borrower taking up a loan to finance the purchase of a property or development of a land plot, which is often secured by a mortgage over the property or land.
• Acquisition financing involves the provision of loans to companies or private equity firms for the purpose of acquiring another company. Whether a public or private acquisition, you will be working closely with M&A lawyers to work out financing kinks in a public takeover or a leveraged buyout. Depending on the complexity of the transaction, financing structures can involve multiple layers such as senior debt, mezzanine debt and bondholder debt, and the regulating of subordination of debts and priority of security interests is commonly dealt with amongst creditors by the entry into an inter-creditor agreement. Another consideration is the prohibition on financial assistance in public companies. This can be addressed through either a whitewash procedure or avoided by satisfying certain criteria laid out in s 76 of the Companies Act.
• Project finance is typically used in long-term and large-scale projects such as oil & gas, power plants, public infrastructure and renewable energy projects. An important point is the non-recourse basis of these loans, meaning that upon a default, lenders cannot seek repayment by going after the assets of the borrower. Since the loan will be repaid from the cash generated by the project, lenders place particular emphasis on the commercial viability and bankability of the project.
• Trade finance smoothens/expedites international trade, allowing companies to buy and sell goods on credit. Another form of trade finance is factoring, the selling of accounts receivables to financiers to obtain cash. Besides freeing up liquidity, this guards against the risks of non-delivery or damage to goods. A key document used in trade finance is the letter of credit issued by banks, undertaking to pay a specified sum. These are exchanged for documents of title to the goods, often bills of lading or warehouse receipts. Parties may insure against risks to the transaction, of which the proceeds will often be assigned to the lender as security.
• Structured finance is used by borrowers with bespoke needs that a conventional loan or financial instrument cannot cater to. It may involve the securitisation of assets (themselves often illiquid on a stand-alone basis) into financial instruments that can then be sold to investors as an alternative source of funding and capital. Examples of structured finance products include credit defaults swaps, collateralized bond obligations, collateralized debt obligations and mortgage-backed securities.
• Islamic finance refers to capital that is raised and specially structured in adherence with Sharia or Islamic law. For example, one fundamental tenet of Sharia is the prohibition against collecting interests on loans, which has led Islamic banks to instead rely on an equity participation structure where its return comes in the form of a share of the borrower’s profits.

WHAT YOU CAN EXPECT

• The typical types of credit facilities are term loans with a set interest rate and maturity date and revolving credit which allows for capitalising on multiple drawdowns of the facility. Some of the common structures of financing include (i) bilateral loan involving one lender and one borrower, (ii) syndicated loans involving multiple lenders (when the risks or amount is too high for only one bank to provide finance) and (iii) club loans which similarly involves multiple lenders. For deals involving multiple lenders, one lender may be chosen to act in roles including (i) book-building which involves the solicitation of commitments to appropriately price interest rates, (ii) underwriting which is an undertaking to subscribe for the entire loan should there be a lack of interest, (iii) arrangers who administrate the drawing and repayments of the loan and (iv) trustees who hold security for the behalf of the lenders as a whole.
• Depending on your level of seniority, you may be more involved in selected parts of the financing deal. For example, a Partner may handle deal structuring and the more complex negotiation points, a senior/mid-level associate may draft the key transaction documents (e.g. the facility agreement), while the junior lawyer or trainee may take charge of the ancillary documents.
• Conduct due diligence to ascertain the information provided by the borrower, which is critical given that a loan can last for many years and hence repayment is dependent on the business sustainability of the borrower. The extent varies depending on the transaction but can encompass review of corporate documents and material agreements, meetings with key management personnel, on-site visits and inspections, verifying ownership of assets (such as intellectual property or land interests), and working closely with auditors on the financial due diligence.
• Draft the Facility Agreement, which is one of the most important roles of banking practitioners owing to the complexity of drafting agreements that are able to capture the commercial reality of the transaction and allocate risk appropriately. The common bones of contention are the types of securities obtained to secure the loan, the conditions precedent to be met before completion, representations and warranties, and provisions governing financial covenants and events of default. Initial terms are usually set out in a Term Sheet before being fleshed out in the facility agreement and other transaction documents.
• Draft, obtain and keep track of ancillary documents related to the transaction, including ensuring all the condition precedent documents are in order. These documents serve various functions, from security (e.g. guarantees, mortgages, charges and assignment of proceeds), internal approvals (e.g. directors’ and shareholders’ resolutions, amendments to corporate constitutions), legal opinions, third party and regulatory consents, to transaction-specific documentations (e.g. property valuation reports, SGX approvals for delisting, power purchase agreements, etc).
• Post-completion, ensure all filings and procedures are duly completed to perfect and register the security, and also ensure ongoing undertakings and covenants are complied with.
• Ensure compliance with financial laws and directives. For local transactions, this requires knowledge of local statutes and regulations dealing with licenses, taxes and anti-money laundering (AML) measures. These include the Companies Act, the Banking Act, the Monetary Authority of Singapore Act, the Bills of Exchange Act, as well as MAS directives. For cross-border deals, the scope is widened to cover several key EU directives relating to AML and the US Foreign Account Tax Compliance Act.