Loan to value covenants

Produced in partnership with James Walton of Charles Russell Speechlys LLP and Yvett Talas of Charles Russell Speechlys LLP

Practice notes

Loan to value covenants

Produced in partnership with James Walton of Charles Russell Speechlys LLP and Yvett Talas of Charles Russell Speechlys LLP

Practice notes

This Practice Note looks at:

•
the key features of loan to value (LTV) covenants in secured lending transactions
•
possible issues with calling an Event of default based on a LTV covenant breach
•
potential challenges to an event of default based on a LTV covenant breach
•
remedying a LTV covenant breach, and
•
the impact of the economy on LTV covenant breaches

LTV covenants are a critical component of risk management in secured lending. An LTV covenant is a common form of financial covenant which requires the principal sum of an outstanding loan, when expressed as a percentage of the value of the security charged to a lender, to remain below a stipulated level during the term of that loan. This provides a mechanism for lenders to monitor and maintain the security of their loan over time. For borrowers, understanding and negotiating these covenants is essential to securing favourable loan terms and avoiding the pitfalls created by a covenant breach. While

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James Walton

Partner, Charles Russell Speechlys LLP

James has over 20 years post-qualification experience advising on all forms of finance transaction. He advises lenders, borrowers and other market participants on senior debt, mezzanine debt, equity investments, loan acquisitions, ‘loan on loan’ transactions and other forms of debt financing transactions, as well as loan restructurings and enforcements. His clients include banks and specialist lenders, debt funds, family offices, loan servicers, private equity funds, insolvency practitioners and corporates.

James has extensive expertise in advising on real estate debt financings, acting on both the ‘lender side’ and ‘borrower side’ of these transactions, working on transactions involving all types of real estate, both in the UK and overseas.

He has experience in both buying and selling performing and non-performing loans and loan portfolios and ‘working out’ non-performing loans and loan portfolios post-acquisition, including advising on restructuring and security enforcement strategies and working with clients to extract value from the acquired portfolio.

James has particular knowledge and experience of the evolving litigation funding market, advising and working with funders, insurers and other interested parties on the financing of disputes.

James is recognised in the Legal 500 for his real estate finance experience, where his client testimonials include:

• "James has great practical knowledge and is excellent at providing guidance as to how a difficult situation might play out. He is our first port of call in a contentious situation".

• "James has structured complex deals for us. He has excellent commercial awareness and is a trusted advisor to our business."

• "James is a very knowledgeable, approachable individual. He clearly engages the rest of his team on our transactions whilst taking the lead. He is pragmatic and commercial and a pleasure to work with."

Yvett Talas

Associate, Charles Russell Speechlys LLP

Yvett advises on a wide range of banking transactions, including corporate acquisitions, debt refinancing and restructuring, and real estate investment and development finance.

Jurisdiction(s):

United Kingdom

Key definition:

Event of default definition

What does Event of default mean?

The contractually specified reason or event that allows the non-defaulting party to end the agreement.

Loan to value covenants

Produced in partnership with James Walton of Charles Russell Speechlys LLP and Yvett Talas of Charles Russell Speechlys LLP