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ABOUT THIS MANUAL
[See the Addendum
below regarding the hypertext version.]
This manual is to help any two people discussing a proposed
financial covenant for a private placement transaction to
determine whether they are talking about the same thing.
People often begin negotiations using shorthand expressions
for concepts believed to be commonly understood. Agreements are
perceived, commitments are made, and time and money are
dedicated to pursue a closing. When the shorthand expressions
later prove to mean different things to different people,
suspicions may arise whether the other party is trying to change
the deal. In any event, the results are somewhat different than
anticipated and the costs are higher.
If one person were to ask the other to refer to a particular
provision shown in this manual and verify whether that provision
constitutes what is proposed, either answer-yes or no-will
hasten their coming to a real meeting of the minds. This
conversation might be between an issuer and its financial
adviser, between a placement agent and an offeree, or between a
note purchaser and its counsel. It might be among any group of
people working on a financing.
Shared familiarity with particular contract language leads to
quicker, more cost effective, and more assured results-witness
the popularity among parties who have previously transacted
business with one another of the suggestion to use the same form
of documents in a subsequent transaction. It is hoped that
institutional investors and placement agents will soon become
familiar with the provisions in this manual, so that the manual
may serve as the common reference that provides the "shared
familiarity" and its attendant benefits.
* * * * *
This manual contains definitive contract language for
financial covenants that are often found in private placements
of debt issues purchased by institutional investors. Instruction
is not the purpose, but the reader will find occasional
notations explaining the context of the material or suggesting
alternative or related areas to consider. While only the more
common or simpler variations are presented, they may serve as a
basis for constructing more elaborate or customized covenants.
It has been assumed that the financial tests will be
calculated on the basis of the Company and its consolidated
Subsidiaries. In many transactions it may be desired to design
the financial tests with respect to a different group (e.g.,
the Company and all of its Subsidiaries; the Company and
a group of restricted Subsidiaries). It may be
appropriate to adjust the notion of Subsidiaries in just certain
covenants (e.g., in a Debt covenant, intercompany debt
might be permitted only with Wholly-Owned Subsidiaries;
in a Restricted Investments covenant, investments in
Subsidiaries might be permitted only if there is some minimum
ownership interest).
Definitions are an integral part of the covenants and must be
read if the covenants are to be understood. They often contain
additional variables or lists from which to select items or to
which to add custom specifications. While the definitions appear
in Appendix Z at the end of the manual, each chapter begins with
a list of the defined terms used in that chapter (other than
obvious terms such as "Company", "Person",
"Notes", etc.).
Reference is occasionally made in
the footnotes to the September 13, 1994 versions of Model
Form No. 1 of Note Purchase Agreement ("Model Form
No. 1") and Model Form No. 2 of Note Purchase
Agreement ("Model Form No. 2," and together
with Model Form No. 1, the "Model Forms")
published by the Private Placement Enhancement Project. Any such
reference is only for illustration. There is no suggestion that
any of the covenants appearing in this manual should be
associated with one Model Form or the other, that the
covenants ought not to be used with any other forms of note
purchase agreement, or that any covenant is expected to be used
or not used with issuers of any particular level of
creditworthiness.
* * * * *
As experience with this manual grows, the Working Group of
the Private Placement Enhancement Project may consider issuing
subsequent versions to adapt its contents to the evolving needs
of the participants in the private placement market. Comments
may be submitted by writing to Private Placement Enhancement
Project, c/o William M. Duncan, CIGNA Investment Management
(S-215), 900 Cottage Grove Road, Hartford, CT 06152-2215
(e-mail: william.duncan@cigna.com)
or to any other member of the Project listed on the Authors
page.
This publication is designed to provide accurate and
authoritative information in regard to the subject matter
covered. It is published with the understanding that the
publisher is not engaged in rendering legal, accounting, or
other professional service or advice.
* * * * *
ADDENDUM REGARDING
HYPERTEXT VERSION: The contract language, commentary and
enumerations remain unchanged from the hardcopy version
published in February 1996 (see the Project's
Home Page). Adjustments have been made to the cover
(Manual's
Home Page), tables of contents, organization and format,
including the insertion of hyperlinks, to take advantage of the
hypertext markup language as implemented in Netscape Navigator,
Version 2.01 (trademark, Netscape Communications Corporation).
Copyright
© 1995 and 1996 by the Private Placement Enhancement
Project.
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