Facility Agreement Review: A GC Playbook

What a Facility Agreement Review Actually Covers

A thorough facility agreement review works through the document in the same logical order a lender's counsel drafted it, because each section constrains the next. You begin with the mechanics — facility type, commitment amount, availability period, purpose clause and repayment schedule — then move to the conditions precedent that must be satisfied before a single rupee is advanced. Conditions precedent are where deals stall in practice: board and shareholder resolutions, constitutional documents, legal opinions, security perfection evidence and know-your-customer packs all have to be delivered and accepted, and the review should confirm the company can realistically meet each one on time.

The heart of the review is the trinity of representations, covenants and events of default. Representations are statements of fact the borrower certifies as true, often repeated on every drawdown and each interest payment date. Covenants are the ongoing promises — financial ratios, information undertakings, and negative covenants restricting further borrowing, disposals, dividends or change of control. Events of default define the lender's remedies. A good reviewer does not read these in isolation; they map how a breach of one information covenant can, through a materiality qualifier or a grace period, cascade into an event of default that permits acceleration and enforcement of security.

The final layer is the boilerplate that is anything but boilerplate: governing law and dispute resolution, assignment and transfer provisions, tax gross-up and indemnity clauses, and the increasingly important set-off and consolidation rights. In cross-border facilities these clauses determine whether an Indian borrower can be sued abroad, whether withholding tax risk sits with the company, and whether the lender can transfer the loan to a distressed-debt buyer without consent.

• Facility mechanics: type, commitment, availability period, purpose and repayment profile
• Conditions precedent: corporate authorisations, legal opinions, security perfection and KYC
• The core trinity: representations, financial and negative covenants, and events of default
• Remedies architecture: acceleration, cross-default, and enforcement of the security package
• Boilerplate with teeth: governing law, transfer rights, tax gross-up and set-off

Corporate Facility Agreements vs the Banking-ISDA World

The distinction that separates confident debt-finance counsel from generalists is understanding that a corporate facility agreement and an ISDA Master Agreement are two different legal machines, even when they govern money owed to the same bank. A facility agreement is a lending contract: it advances principal, charges interest, takes security and is enforced through acceleration and, ultimately, insolvency or SARFAESI enforcement. An ISDA Master Agreement governs derivatives — the interest-rate swaps or currency forwards a company enters to hedge a floating-rate facility — and it is built around a fundamentally different risk model of mark-to-market exposure, close-out netting and collateral posting.

The two are almost always linked, and the review must trace those links. A borrower on a floating-rate term loan will frequently be required, as a covenant, to hedge a portion of its interest-rate exposure. That hedge is documented under an ISDA, with cross-default and cross-acceleration provisions that reach back into the facility agreement. A default under the loan can trigger an early termination of the swap; a large mark-to-market payable on the swap can strain the very cash flows the covenants police. Reviewing the facility agreement in isolation, without reading the hedging schedule and the ISDA it points to, leaves a blind spot precisely where the largest contingent liabilities hide.

• Facility agreements lend and secure; ISDAs govern hedging exposure and close-out netting
• Hedging is often a loan covenant, so the two documents are contractually intertwined
• Cross-default and cross-acceleration wiring links a loan breach to swap termination
• Mark-to-market swap liabilities can strain the cash flows the loan covenants monitor

The India-Specific Legal Overlay Every Review Must Apply

A facility agreement review conducted for an Indian borrower cannot stop at the contract text; it has to test the document against Indian company law, secured-transactions law and, where relevant, foreign-exchange regulation. The Companies Act 2013 is the first checkpoint. Directors must have authority to borrow, and where the aggregate borrowing exceeds the company's paid-up capital, free reserves and securities premium, a shareholders' special resolution is required — the board resolution alone is not enough. Every charge created to secure the facility must be registered with the Registrar of Companies within the statutory window; an unregistered or late-registered charge is void against a liquidator and other creditors, which can silently destroy the lender's security and, by extension, the covenant package the borrower agreed to.

The security side draws in several statutes at once. Charges over immovable property implicate the Registration Act and the Transfer of Property Act; the enforcement route for secured lenders runs through the SARFAESI Act, 2002, and security interests are recorded in the central registry maintained under that framework. Stamp duty under the Indian Stamp Act and the relevant state legislation is a recurring trap — an under-stamped facility or security document may be inadmissible in evidence, so the review should confirm the correct stamp treatment for the state of execution. Where the lender is offshore, the external commercial borrowing framework administered by the RBI under FEMA governs eligible borrowers, permitted end-uses, all-in-cost ceilings and reporting, and non-compliance can render the borrowing itself irregular.

Finally, the review must keep the endgame in view. On default, the interplay between SARFAESI enforcement and the Insolvency and Bankruptcy Code, 2016, determines how quickly and through which forum a lender realises value, and where the borrower sits in the creditor waterfall. Understanding that endgame shapes how aggressively the borrower should resist tight default triggers and short cure periods during negotiation.

• Verify directors' borrowing authority and any required shareholders' special resolution
• Register every charge with the Registrar of Companies within the statutory window
• Confirm correct stamp duty for the state of execution to preserve admissibility
• Apply the RBI external commercial borrowing framework to any offshore lending
• Map the SARFAESI and IBC enforcement endgame before agreeing default triggers

High-Risk Clauses That Deserve Line-by-Line Scrutiny

Not every clause carries equal risk, and an efficient review concentrates senior time where the exposure is greatest. Financial covenants top the list. A leverage or debt-service-coverage ratio that looks comfortable at signing can become a straitjacket in a downturn, and the definitions matter as much as the numbers — how EBITDA is calculated, whether it is adjusted for one-offs, and how equity cure rights work often decide whether a technical breach becomes a genuine crisis. The reviewer should stress-test each ratio against the company's own forecasts, not the lender's optimistic base case.

Material adverse change clauses, cross-default provisions and mandatory prepayment triggers form the second tier. A broadly drafted material adverse change clause hands the lender a discretionary off-ramp; the borrower should push for objective, measurable standards. Cross-default clauses are the connective tissue that can turn a minor breach elsewhere — including under an ISDA hedge or a group company's facility — into a default here, so the threshold amounts and whether the trigger requires actual acceleration or mere default are worth negotiating hard. Mandatory prepayment events, particularly change-of-control and asset-disposal sweeps, can force early repayment at the worst possible moment.

The third tier is the indemnity and cost-recovery architecture: tax gross-up, increased-costs clauses, break costs and the lender's expense indemnities. Individually these read as administrative; collectively they shift a meaningful quantum of contingent liability onto the borrower. A review that flags these clauses with proposed fallback positions gives treasury and the board a realistic picture of the true cost of the facility.

• Financial covenants: interrogate ratio definitions, adjustments and equity cure mechanics
• Material adverse change: push discretionary language toward objective, measurable triggers
• Cross-default: scrutinise threshold amounts and whether mere default or acceleration triggers it
• Mandatory prepayment: assess change-of-control and disposal sweeps against business plans
• Indemnities and gross-up: quantify the aggregate contingent liability they create

Building a Repeatable Review Workflow

Ad hoc review does not scale, and it produces inconsistent results across a lending programme where a company may sign several facilities a year. The answer is a documented playbook: a standard checklist mapped to the sections above, a clause library of the company's preferred and fallback positions, and a risk-rating scheme that lets reviewers flag deviations from the standard as low, medium or high. When every facility is scored against the same rubric, the general counsel can compare the fifth facility to the first, spot drift in the covenant package over time, and brief the board on portfolio-wide exposure rather than one deal in isolation.

Workflow discipline also shortens cycle time. Many legal teams report that the bottleneck is not the reading itself but the coordination — chasing conditions-precedent evidence, reconciling the security schedule against the charge registrations, and version-controlling markups across treasury, external counsel and the lender. A structured review process with a single source of truth for the document set, and clear ownership of each deliverable, removes most of that friction. The measurable payoff is faster drawdowns and fewer post-closing perfection failures.

The most mature teams treat the covenant package as a living obligation rather than a signing-day event. They extract every financial covenant, information undertaking and testing date into a monitoring calendar so that compliance certificates are prepared ahead of deadlines and no reporting obligation is missed. This closes the loop between review and ongoing management, which is where covenant breaches are actually avoided.

• Standardise a checklist and clause library with preferred and fallback positions
• Risk-rate every deviation so exposure is comparable across the whole lending programme
• Keep a single source of truth for the linked document set to cut coordination delay
• Convert the covenant package into a monitoring calendar with testing dates and owners

Where Legal AI Accelerates Facility Agreement Review

Legal AI does not replace the judgement of experienced debt-finance counsel, but it removes the mechanical drag that consumes most of the hours. On a first pass, it can extract the facility's key terms into a structured summary — commitment amount, margin, covenants, testing dates, events of default and prepayment triggers — so the reviewer starts from an organised map rather than a hundred pages of prose. It can compare the draft against the company's playbook and flag every clause that departs from the preferred position, ranked by risk, which is exactly where senior attention should go first.

The technology is especially valuable in tracing cross-references. Because it reads the facility agreement, the security documents and the hedging schedule together, it can surface the cross-default links between the loan and the ISDA, identify where a defined term is used inconsistently, and catch conditions precedent that lack corresponding evidence in the closing set. For teams managing a portfolio of facilities, the same extraction feeds a covenant-monitoring dashboard, so testing dates and reporting deadlines are tracked automatically rather than in a spreadsheet that quietly goes stale.

The practical test for any such tool is whether it keeps a human firmly in control, shows its working by pointing to the exact clause behind every flag, and handles Indian documentation and the local perfection overlay rather than assuming a purely offshore template. Used that way, legal AI turns review from a linear read into a triaged exercise where counsel spends their time on negotiation and judgement, not on locating the clauses in the first place.

• Automated extraction of covenants, margins, testing dates and default triggers into a clean summary
• Playbook comparison that ranks deviations by risk so senior time is spent where it matters
• Cross-reference tracing across facility, security and ISDA hedging documents
• Direct feed into a covenant-monitoring dashboard for the whole lending portfolio

Governance, Disclosure and Data Protection

Facility documentation generates governance obligations that continue long after signing. For listed companies, the SEBI listing and disclosure framework treats loan defaults and certain material financing events as disclosable to the stock exchanges, often within tight timelines, so the legal team's review should identify which covenants and events, if breached, would create a disclosure trigger. Building that mapping at review time means the company is never scrambling to assess disclosure obligations in the middle of a default, when time is shortest and scrutiny highest.

Data protection is the newer dimension. Facility and security documents, and the diligence packs behind them, contain personal data of directors, guarantors and sometimes borrowers who are individuals. The Digital Personal Data Protection Act, 2023, imposes obligations around how that personal data is collected, stored, shared with lenders and syndicate members, and eventually erased. A review process that handles these documents — particularly one using automation — should be built on infrastructure with clear access controls, audit trails and defined retention, so that speed does not come at the cost of compliance. The same audit trail also serves the legal function's own governance: a defensible record of who reviewed what, which risks were flagged, and how they were resolved.

• Map covenant breaches to SEBI disclosure triggers for listed borrowers at review time
• Treat director, guarantor and individual-borrower data as personal data under the DPDP Act 2023
• Insist on access controls, audit trails and retention limits in any review platform
• Maintain a defensible record of flagged risks and their resolution for internal governance