THE LONDON CLUB GLOSSARY OF SELECTED TERMS

Acceleration
The process, manifested in the acceleration clause, which requires the borrower to pay part or all of the balance sooner than the date specified for payment when a given even, specified in the acceleration clause, occurs.

Assignability
The ability of a bank or financial institution which forms part of a restructuring agreement to assign its debts (with or without the prior consent of the obligor) to another bank or financial institution.

Bank Advisory Committee (BAC)/Bank Steering Committee
A liaison committee between the debtor country and the body of commercial bank creditors. In the absence of a formal framework for rescheduling, the banks with the greatest exposure to a country will form a committee, called the Bank Advisory Committee or Bank Steering Committee, to look after the interests of all commercial banks with loans to that particular country. Thus the Bank Advisory Committee represents the universe of the Sovereign's bank and financial institution creditors with membership sufficiently broad to be responsive to the different business concerns and regulatory and accounting environments of the creditors but not so large as to compromise efficiency. The committee frequently establishes close links with the IMF and comprises between 5 to 15 members.

Capture or Consolidation Period
Maturities on deb outstanding as of the cut-off date which are actually going to be subject to a rescheduling.

Comparability
Comparability means comparable treatment or that the level of debt relief given by the commercial creditors in a rescheduling be as generous as the relief offered by creditor governments in the Paris Club. See linkage, equal treatment.

Conditions Precedent
A requirement, usually contained in a rescheduling agreement, stating that the agreement will become operational or effective depending on certain conditions being met or certain events occurring. The purpose of such a requirement is to ensure that all legal requirements especially those that may affect the validity and/or enforcement of the agreement have been complied with. Where a new money commitment is to be drawn in tranches, there usually are prescribed conditions precedent to each drawdown (as each drawdown is regarded as a loan in its own right). Conditions precedent are also called pre-disbursement conditions.

Consolidation
A metamorphosis of the loans from those with a maturity date as per the original schedules to those with a revised maturity date with this metamorphosis to take place by contract. Consolidation is one form of restructuring - other forms include refinancing or layering.

Covenants
The lending banks' and financial institutions' interest in exercising some form of supervision over the loan provided to a borrower is manifested primarily in the covenants clause. The borrower seeks to maintain the greatest freedom possible for its normal activities, but the lending banks and financial institutions want some restrictions. Covenants may sometimes be called "undertakings" and are drawn up depending on the bargaining power of the two parties. For example, two important covenants are the negative pledge clause and the pari passu clause.

Cross-Default Clause
The purpose of a cross-default clause is to place the lenders on an equal footing with the borrower's other creditors should the borrower default under one or more of its other agreements. It should be noted that the inclusion of a cross-default clause is the best way of persuading a reluctant lender that it would be ill-advised to stay out of the rescheduling since any unilateral effort to secure a remedy would trigger the right of all other bank creditors to do likewise.

>> next | back to table of contents