Loan document conditions

Standard forms and documentation

What standardized forms or terms are commonly used to prepare bank loan documentation?

Maltese banks use their own standard documentation for most local loan transactions. For larger transactions, however, documentation from the Loan Market Association (LMA) is often adopted.

Pricing and interest rate structures

What are the typical pricing or interest rate structures for bank loans? Do pricing or interest rate structures change if the bank loan is denominated in a currency other than the national currency?

Maltese banks usually only lend in euros and charge EURIBOR rates for larger installations. Smaller local facilities would be based on the bank’s internal base rate.

Have procedures been adopted in the documentation of bank loans in your jurisdiction to replace LIBOR as the benchmark interest rate for loans?

Since international financial transactions are not structured outside Malta, the phasing out of LIBOR has not been a central issue for Maltese banks.

Other determinants of loan returns

What other determinants of bank loan yield are commonly used?

Maltese banks tend to use standard EURIBOR plus margin interest rate structures, subject to a zero percent interest rate floor to avoid the risk of negative interest rates.

Yield protection provisions

Describe any yield protection provisions typically included in bank loan documentation.

Performance protection mechanisms tend to be based on LMA standards, with little or no deviations that can be negotiated for a particular agreement.

Accordion arrangements and sidecar financing

Do bank loan agreements generally allow additional debt that is secured on a pari passu basis with senior secured bank loans?

No. This approach is not the typical approach taken by Maltese banks as they invariably insist on having top priority over all security assets. Some forays into this approach exist in cases where a priority of priority is established by law, such as the privileges established by law in relation to the payment of seafarers’ wages from the proceeds of the sale of a vessel, which would have priority before the rights of the bank as mortgage creditor.

Financial maintenance commitments

What types of financial sustaining covenants are typically included in bank loan documentation, and how are these covenants calculated?

Financial maintenance covenants for larger facilities would be largely based on the LMA standards.

Other alliances

Describe any other covenants restricting the operation of the debtor’s business typically included in the bank loan documentation.

Maltese banks generally establish approval mechanisms for any material or capital expenditure by the borrowing company as well as by the guarantors to ensure that these commitments do not have a significant impact on their financial integrity that could affect their financial integrity. ability to honor their obligations to the bank. There are often many negotiations on this point as well as on the value threshold that makes any commitment significant in the context of the financial position of the borrower or guarantor, especially when the normal course of business requires continued investment.

Compulsory prepayment

What types of events typically trigger mandatory prepayment requirements? Can the debtor reinvest the proceeds from the sale of assets or a loss in his business instead of prepaying bank loans? Describe other common exceptions to mandatory prepayment requirements.

In accordance with LMA standards, mandatory prepayment would be triggered in circumstances where it becomes illegal for a lender to perform any of its obligations as provided for in the agreement, in which case the borrower would have to prepay the participation. from the lender to the loan concerned. , and there would be a change of control of the borrower.

Compensation of the debtor and reimbursement of costs

Describe generally the obligations to indemnify and reimburse the debtor’s expenses, with reference to any common exceptions to these obligations.

The obligations to indemnify and reimburse the debtor’s expenses would also generally be in accordance with standard practice of the AML.

Declaration date of the law

Correct on

Give the date that the above content is correct.

May 11, 2020.