3. Representations and warranties

3. Representations and warranties

Representations and warranties clauses contain statements that the borrower is required to confirm. There are two main categories of representations and warranties: (i) legal representations that concern the legal validity of relevant matters and (ii) commercial or factual representations that concern businesses or financial status of relevant parties.

Examples of common representations are confirmations:

• that the borrower has the capacity and authority to enter into the loan agreement; 
• that all obligations under the loan agreement are legal, valid, binding and enforceable; 
• that these obligations do not contravene any applicable laws and regulations or other binding agreements and instruments; 
• that all documents provided by the borrower are true, complete, and accurate; 
• that there is no event of default that is continuing or may reasonably be expected to result from the borrower entering into the loan agreement; 
• that the payment obligations of the borrower under the loan agreement rank at least pari passu with all its other unsecured borrowings; and 
• that there are no legal proceedings initiated against the borrower. 

Repetition of representations

It is common for loan agreements to include a repetition of representations clause which provides that all or certain representations made in the loan agreement are deemed to be made again by the borrower on a future date. Common examples include the date of making a drawdown request or the first day of each interest period. The repetition of representations clause provides additional assurance for the lender as each occasion of repetition serves as “draw-stop” and a potential ground for the lender to exercise its rights and remedies if the original representation becomes untrue as a result of a change in law or fact. 

Borrowers should read the representations carefully, and ensure that the representations will indeed be correct on each date on which they are made. If necessary, appropriate carve-outs to the representations should be negotiated with the lender. 

What will happen if representations and warranties are found to be untrue?

Misrepresentation is often included as an event of default that entitles the lender to accelerate the loan. There may also be common law remedies of misrepresentation. Please refer to the discussion on default for more details.