Commercial Lending Workshop, Spring 2007

This 2 credit class meets in Room: 408, Wednesday evenings from 5:30 to 7:20.

Tell me about...

Course Subject Matter

This is an advanced course that focuses on current issues in commercial lending. The course gives students an opportunity to learn about different lending structures and how those structures are reflected in loan documentation. Secured and unsecured loans, guarantees, subordination contracts and commitment letters are studied. Time permitting, students will be exposed to basic structures used in securitization transactions. Students in the Taxation LLM program may take this course for credit. You should have taken a commercial law, bankruptcy or business associations class prior to signing up for this workshop.

Course Materials

There is no textbook for this class. You should have a copy of Selected Commercial Statutes (West), Commercial And Debtor-Creditor Law: Selected Statutes (Foundation Press) 2006 or a similar statute book. Do not make the mistake of using an out of date statute book. The instructor will post materials for the course at the bottom of this page.

Attendance Policy

Students are expected to attend class on a regular basis. Students may be required to sign an attendance sign-in sheet prior to each class. DO NOT BOTHER Professor Widen with excuses related to class absences. If you want an excused absence you must get it from the Dean of Students Office. If you waste Professor Widen's time by passing along some equivocal non-sense about leaving the excuse up to the Professor's discretion, Professor Widen will count that absence as TWO ABSENCES. It is the job of others to evaluate excuses and Professor Widen will not participate in passing along responsibility for this decision.

Final Exam

The final exam will be a 3 and one-half hour in class written examination. The final grade may be reduced based on poor class attendance and/or poor class participation.

Pass/Fail Option

Professor Widen will sign any request form to take a course for a grade of pass/fail. Warnings: Many good students have taken a course pass/fail only to receive a grade of A or B+. If you elect the pass/fail option and receive a grade below C (e.g. a C- or a D) you will not get credit for the course. Further, the Law School only permits a limited number of pass/fail credits. These rules are set by the Law School not Professor Widen. Appeals for exceptions made by graduating seniors or anyone else will be categorically rejected by Professor Widen.
The bottom line: Professor Widen does not recommend that any student take the course pass/fail but will honor a choice made by the student that is sanctioned by the Law School.

Request for Grade Change

If asked, Professor Widen will review an exam for a computational error. This is the only basis for a grade change. Professor Widen will review a student's exam to explain to a student why the examination received the grade that it did.

Course Materials

FIRST CLASS MEETING

Prior to attending the first class, students should prepare a written answer to the pre-quiz linked here. Lending-Pre-Quiz. This quiz will not be graded but it will be used to assess the general sophistication of the class. It may help students make a timely add/drop decision. We will use the facts of the pre-quiz as the basis for our initial class discussion during the first hour.

During the second hour of our first meeting, we will focus on a chronology of the actual problems facing Healthsouth a few years ago when the chairman of Healthsouth and others at the company were accused of various types of fraud. Healthsouth Chronology. Our focus will be on the interaction between these allegations of fraud and the Credit Agreement negotiated with a syndicate of lenders shortly before the troubles began. Healthsouth Credit Agreement. You should have read the chronology and the credit agreement prior to the first class. In your initial reading of the credit agreement, try to focus on those aspects of the credit agreement most relevant to the problems at Healthsouth detailed in the chronology.

Your review of the chronology and your initial reading of the credit agreement will form the basis for an introduction to the structure of credit agreements. We will spend many class sessions on this agreement, so you should not be concerned if the agreement seems a bit daunting at first reading.

SECOND CLASS MEETING

You should read the following summary prepared by the Milken Institute. It will give you an introduction to the general market in which we are operating.The U.S. Leverage Loan Market: A Primer In addition, you should re-read the Healthsouth Credit Agreement. Consider what kinds of transactions the agreement permits the borrower to engage in and what types of transactions the agreement prohibits. Lastly, consider what type of pre-payment events might be added to or modified to make the syndicated lenders more secure. In that connection, consider the following outline discussing the treatment of net cash proceeds and excess cash flow covenants. Net Cash Proceeds

THIRD CLASS MEETING

We will continue our consideration of prepayment events relating to the receipt of net cash proceeds and excess cash flow. To begin our consideration of restrictive covenants, you should read the Lincoln Savings case mentioned during the last class (743 F. Supp. 901)--in particular, you want to focus on how a tax sharing agreement might be used to circumvent a restriction on the payment of dividends. In context, suppose that you have made a loan to a subsidiary company and you have prohibited the subsidiary (your borrower) from paying dividends to the parent company while your loan is outstanding. What other methods might the subsidiary use to transfer cash to its parent company? Lastly, in relation to the materials describing the syndicated loan market, take a look at the sections of the Healthsouth Credit Agreement describing the role of the agent bank and the provisions that deal with assignments and participations of loans.

FOURTH CLASS MEETING

As we continue our consideration of assignments and participations(and focus on the relationship of these provisions to language in the agreement providing for tax gross ups, please consider the following two cases: Continental Bank Corporation v. Commissioner and SDI Netherlands v. Commissioner. In addition, we need to discuss "excess cash flow calculations." Read the Healthsouth Credit Agreement yet again.

FIFTH CLASS MEETING

This class continued our discussion of tax gross up provisions, including a discussion of IRC 881(c) using materials handed out in class.

SIXTH CLASS MEETING

In this class we will continue our consideration of provisions of the Healthsouth Credit Agreement. However, we may begin thinking about the commitment letter process. To that end, I am posting some sample commitment papers, as well as an outline on commitment letters. Senior Loan Commitment Letter ; Senior Loan Term Sheet ; Commitment Letter Outline