General Discussion
In reply to the discussion: It's a BFD that Trump Org and not Trump himself is getting indicted today [View all]LetMyPeopleVote
(144,919 posts)The trump organization lenders may soon take action. Every corporate loan agreement contains a representation that the borrower is in compliance with the law and in some cases this representation may be qualified by material adverse effect language to the effect that there is a breach of this representation only if the breach of the law has a material adverse effect ("MAE" on the borrower and its business. Each loan agreement also contains a covenant that the borrower is complying with the law and this covenant may be subject to MAE language. In addition the borrower normally has to notify the lenders if there is a material adverse change in the business or prospect of the Borrower.
For term loan agreements, the borrower has to submit regular financial statements and a certificate signed by a senior employee of the borrower that all representations and warranties made in credit agreement are true and correct and that the borrower has complied with covenants. If the lender is a federally insured institution, there are criminal penalties for false certifications to an insure financial institution. For revolving loans, the borrower has to submit a certificate for each draw on the loan containing the above certifications. The Manhattan DA may not enforce this requirement but the SDNY could bring suit if they want against anyone who signed a certification to a federally insured lender. The trump CFO needs to assume that if the trump organization is convicted, then the SDNY could also bring charges against the CFO for false statements made in loan certifications.
The trump organization lenders have the right to cut off future draws under any revolver and may call the term loans. Most agreements provide that a breach of covenant such as compliance with laws or lack of a material adverse change are defaults allowing the lender to call the loans. There may be a cure period for covenant breaches but this is the type of breach that cannot be cured. Weak borrowers are sometimes have to agree to an insecurity clause which allows the lender to call the loan if the lender deems itself insecure.
The counsel of the trump organization lenders will be reading today's indictment and they may either cut off loans under any revolver or call a term loan.
This will be fun to watch