Credit agreement
Capital MarketsThe definitive document governing a loan once funded, negotiated in the weeks between signing a commitment and closing.
Also written: facilities agreement, loan agreement, senior facilities agreement
The credit agreement is the long form contract that actually governs the debt: the facilities and their mechanics, representations, undertakings, financial covenants where there are any, events of default, and the machinery for waivers and amendments. In Europe it is often called a facilities agreement and is frequently based on a Loan Market Association template that both sides recognise.
It sits third in a sequence for a practical reason. A term sheet aligns the parties on shape, a commitment letter provides binding funding certainty in time for the buyer to sign an acquisition, and the credit agreement is negotiated in parallel afterwards because it cannot be finished on a deal timetable.
The equivalent for a bond financing is an indenture, and the difference is not only length. A loan is governed by a contract with an identifiable group of lenders who can be approached for a waiver; an indenture governs a widely held instrument where amendments require formal consent solicitations and specified voting thresholds. That is a large part of why a borrower expecting to need flexibility prefers a loan.
The commitment letter constrains what the credit agreement can say. Terms already agreed there, and the flex the arrangers retained, define the perimeter within which the definitive document is negotiated.
Worked example
A buyout signs in March on a commitment letter and closes in June. The credit agreement is negotiated across those three months.
When the borrower later wants to make an acquisition that the debt incurrence provisions do not permit, it asks its lenders for an amendment. A bond issuer in the same position has to run a consent solicitation and usually pay a fee for it.