Debt Transactions

  • Default

The parties can agree that the failure to comply with impact commitments results in a default under a loan agreement. The parties will need to define what constitutes the events of default. We have not included sample language, but the parties will also want to define the consequences of a default, which ordinarily include immediate repayment of the loan (loan acceleration).

 

Sample language: Events of default under the Note shall include: (1) [. . .]; (n) an uncured breach of [specify violation of impact agreements that constitutes default].

  • Increase Interest Rate

In lieu of (or in addition to) a default provision, the parties may decide to implement financial disincentives for violating impact policies or a failure to hit impact milestones in the form of increased interest rates. In such cases, parties must define what triggers the rate increase and the amount of the resulting increase. The definitive documents should make clear that any interest rate increase is subject to usury limitations.

 

  • Increase interest rate based on a single factor:

Sample language: If during the term of the Loan the Company fails to cure the violation of [specify the penalty trigger] within X days, the interest rate shall be increased by X percent, provided that the interest rate shall not be increased above the Initial Rate plus X percent.

  • Increase interest rate based on failure to achieve multiple milestones:

Sample language: During the term of the Loan, the interest rate shall be increased by the amount shown in the table below if the Company fails to achieve the corresponding milestone by the target date. In the aggregate, the interest rate shall not be increased above the Initial Rate plus X percent.

Impact Milestone

Target Date

Interest Increased by if target not achieved

Milestone 1

00/00/0000

X%

Milestone 2

00/00/0000

Y%